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Someone on HD asked if my inflation adjusted retirement income today still equaled my base salary when I retired.
The answer is a resounding no. For every dollar of base pay in 2009 I would need $1.50 today. Since my pension does not have a COLA, any automatic adjustment is up to Social Security, but that is less than a quarter of our income.
So, now I am 50% behind – no panic yet, but I am glad I didn’t start out say, with 80% income replacement. My extreme fiscally conservative attitude on this subject provided a cushion relative to our spending. Never in thinking about retirement did I consider we might spend less – and we don’t.
Our mortgages were paid off several years before retiring and while we don’t save as much, we still save mostly in the form of eleven 529 plans, and reinvesting investment earnings
Minor items that could mean lower spending in retirement have been offset by increased retirement related spending like more grandchildren and healthcare premiums which went from $157 a month for two of us before I retired to $1654 a month today. In the place of general maintenance for our house inside and out, we have a $950 monthly HOA. Frankly I think the HOA is higher on an average annual basis.
As they say, the greatest risk in retirement is longevity.
Everyone has their own way of dealing with inflation. The 4% withdrawal strategy adjusts for inflation. I will deal with inflation when I have to by first using dividends and monthly interest payments and from cash building up in investment accounts, or in the extreme using assets I hope will go to our family.
I asked Gemini how retirees deal with inflation. Many ideas, like part-time work, cutting spending, taking a HELOC, renting a room in your home and delaying SS were not appealing. Various forms of investment income were attractive, TIPS, I Bonds and dividend stocks were mentioned as was rental income.
NJ state workers naively relied on a pension with a COLA, but because the pension fund was in terrible shape, the COLA was “temporarily” suspended. That was in 2011 and still no COLA and the trust is still underfunded. A problem created by politicians and public unions.
The point is that we all need some way to cope with inflation as we live on at least a partially fixed income. I elected to deal with it in advance and 15 years later so far so good, but for many people that may not be feasible or desirable especially if it delays retirement, so they need another strategy.
How are you dealing with or plan to deal with inflation in retirement?
One must remember the 7 most important words of a retiree: “every year everything I buy costs more“. So the enemy really is inflation. Since 1934 the Labor Dept. tells us CPI has averaged 3.4% annually. So when I follow the simple rule of 4% +3% we know why 3% was chosen. Now from 1973-1981 we had lots of inflation and it easily exceeded 3% annually.
We also know that in 1962 (one born then can retire now at reduced SS) the S&P closed at 63 and 2024 at 4,770 or a factor of 76X.
Dividends from the index in cash $2.15 and 2024 it was $70.30, or a factor of 33X.
CPI at the end of ’62 was 30—recently 307–a factor of 10 X
If equities are not a major % of your retirement portfolio then good luck trying to keep up with inflation. Of course the brown underwear years of 2000 (-9/1%)—2001 (-11.9%)—- 2008 (-37%)—covid collapse (-33%)—and 2022 (-18.1%) can ruin many a retiree.
As previously stated my value fund (90%-95% equities) with an emphasis on dividends worked nicely beginning in year 2000 with $300,000 and withdrawing 4% + 3% every year through 3/31/25. Withdrew almost $444,000 and as of March 31 the value exceeded $740,000. Remember, the 4 bear markets above during this 25-year period.
The index ran out of $ many months ago–beginning with two bad years and then 2007, 2008, early 2009 withdrawals hurt badly.
Now the money is managed by the Capital Group–I paid nothing decades ago to invest because of portfolio size–and I know someone has their nose in the air because the expense ratio is north of 55 basis points. That’s fine–same scenario with S&P 500 index shows me with close to 3/4 of a million dollars while anyone with the index has no money and little or no cost. Remember the old saying; there are people who know the cost of everything and the value of nothing.
What if I took cash dividends? $311,000+through 3/31/25 and a value north of $1.2 million. Index? $192,000 and $1.1 million ending value.
Now, it’s obvious that one can pick from Vanguard, Dodge & Cox, Fidelity, and many other fine fund families who have managed funds that in the withdrawal mode can do what folks want–many will do better than I have and have done better. Remember, my fund is basically 100% invested in equities–a few bonds and cash for withdrawal purposes no doubt.
I think I have, with my investments, beaten back the enemy which is inflation. Let’s see what happens going forward.
Herbert Stein: ” everything works until it doesn’t.”
We’re in a transitional period, and I would say there’s a Plan A and a Plan B.
Plan A is surprising me a bit. I’m retiring and he’s not. I will receive two pensions from two university systems, with COLAs, that will replace much of my income. He already gets a pension, also with a COLA, from the state agency he retired from in 2016, and he still works for a private firm. They like him and it sounds like they plan to keep him on for as long as he wants to work, so at this point, he’s saying he’ll go until 70 (he just turned 65) and then retire and take Social Security. He will also get a small pension from his current employer at that point—he vested in it when he turned 65 last month.
If that plan holds, we should be very comfortable for the next five years and there will be no need to file for SS before either of us is 70.
Plan B was the original plan before he surprised me by saying he wants to keep working for awhile: We live on our pensions and have a cash reserve to bridge us to Social Security at either 67 or 70 or some combo of the two. If he either decides he’s tired of working while I’m not(!) or his firm decides they don’t want to keep him on that long, we’ll revert back to that plan. In the meantime, I think we should build a nice cash reserve while he’s still working so we’re ready to pivot if needed. I don’t want him to feel like he has to keep working to maintain our lifestyle.
Plan C would be a combo of the two with the wrinkle that he cuts back to part time for a few years before he’s 70.
It’s mostly up to him at this point. My decisions are made.
No doubt he enjoys his work, but aren’t you guys missing out on some of the best go-go years together if he works to 70?
He works remotely and has a fair amount of flexibility. We still travel quite a bit. The one thing that’s off the table for the moment is some three-month around-the-world cruise kind of thing, but I’m not sure I’d want to do that, anyway.
…also, I don’t really believe he’ll go all the way to 70. I think he’ll watch me living my best life and get jealous. Stay tuned.
Since most folks today will not have any pension, they must focus on the growth of their pool of financial assets. Only with an increasing base of financial assets with half or more invested in the stock market can a person expect to keep up with inflation in retirement. This is the hard cold truth. You can try to dodge, or tap dance around these facts as much as you want but they will not change. That the average person might not understand equities, or other investments is a problem. The fact that there are problems doesn’t change the truth.
That is certainly true. Is managing your money and trying to grow it with investments the answer. I don’t know, but for many people maybe not.
Is an income investment strategy better that relies on dividends and interest adequate assuming that fund is separate from those relied upon for ongoing income? Again, I don’t know, but I guess it depends.
Is the 4% or less withdrawal strategy sufficient? It adjusts for inflation and if you are sure the total investment balance is adequate in theory that should do it, especially if that plus SS is total income aligned with spending.
Is how a retiree begins retirement income wise relative to working income relevant? I think so, but others downplay that idea.
The fact is that since 2009 when my pension was calculated it has lost half its buying power. On the other hand Social Security has provided a cumulative increase equal to $1.4336. That’s not too bad for a person where SS makes up a significant portion of income, but for others not so good.
There appears not to be one, but a combination of answers, but two things are for sure. One way or another inflation needs to be dealt with hopefully not by cutting spending and two, very few retirees actually live on a fixed income as is often claimed.
Without financial assets acquired before retirement, a person will not be able to buy an annuity. Dividends come from equity investments. 4% is meaningless unless there are financial assets from which one can withdraw funds. Whatever strategy might be employed is moot without financial assets.
Without pensions, people need to begin early in working careers to save and invest. SS can only provide a portion of needed income in retirement.
I have been retired since 2001. I have no pension, but I have financial assets which have grown substantially since I retired easily keeping me ahead of inflation.
But from what you say, you are exposed to the risks of the markets.
clearly people need to save from day one of employment and to increase their savings with every increase in income over the years.
However, that is not sufficient. You need to have a steady income stream in addition to SS. In the absence of a pension an immediate annuity will do at least to cover all basic expenses and you need not use all investments to get it.
We have a pension, but also a brokerage account and a rollover IRA each about equal value.
The IRA generates RMD which we reinvest after taxes and gifts.
The brokerage account throws off income with interest and dividends, but so far reinvested. In the absence of the pension a portion of those funds would buy an annuity and we would be using the RMDs
Richard,
Some how you have to get over the idea that everyone has to run their financial affairs just like you do. A person does not have to have an annuity or regular monthly income to live comfortably and be retired. We have been doing just that for 24 years. We have spent millions since we retired.
There is a concept called Total Return. Under this concept, you are successful when the total return on your financial assets, including growth in value, over time exceeds your expenses. You do not SPEND DOWN your assets. They do not diminish, they get larger!
Yes, you are exposed to market risks. When the market goes down your assets do as well. You need to be tough minded to deal with these down times.
If you have the courage, over time you can do well. Your assets go up and so can the amount you spend. It is not hard to manage your affairs such that there is always enough $$ in a checking account to pay one’s bills.
I think that knowing you were going to retire with a pension that totally replaced your work income would reduce your incentive to save. You worked until age 67, I stopped at 55. You had a much larger family to send to college. Your expenses were higher than ours. When you and your spouse ultimately pass on, your pension will as well. Our financial assets will pass on to our children and grandchildren. There is no right or wrong way to live, there are only choices.
Nobody has to do as I do, but most people are not like you and most people would benefit from annuity income. Most people are not tough minded when they see investments decline.
I saved less with a pension, but I saved. Our children will still receive a substantial inheritance.
if my perspective is tainted by a pension, yours is not aligned with the great majority of Americans.
no matter what, I still favor a steady income stream
Since the vast majority of people who could buy an annuity when they retire do not, I think it is possible that you are the one not aligned with the majority. I think it is true that many would be better off with an annuity than trying to do what we have done. Can you produce any data source or survey result that supports what you think is the majority view?
Do you think they are “tough-minded ” when they see the buying power of their non-COLAed income streams nose dive?
You seem to assume an annuity or pension is the sole income when in reality there are also or should be other assets to back them up. Never all eggs in the basket. Read my latest post today.
But you keep arguing for SS and pensions to fund all expenses.
Own your assets (instead of trying to buy income streams), keep the portfolio simple, include present value of fixed income streams like social security and pensions to make sure you don’t over allocate to fixed income.
The more equities you can tolerate the more protection you have from inflation. The lower the percent withdrawal rate, the more protection you have from inflation.
Stop thinking in terms of nominal and think real returns. Everyone does some back of the envelope calculations (or more) start reducing your projected returns by 2.5% to reflect likely inflation, so that when you think about what you need at 80 you’re going to be a lot closer to reality.
For some fine, for most not a viable idea. You do realize many people don’t even know what “equites” means or how to calculate an interest rate.
Then you asked the wrong question!
It’s not a productive exercise to speculate on what other people can or can’t manage.
I think the avg person can easily run a 2-fund portfolio, Vanguard Total Market and Vanguard Core Bond (I like management for my bonds and want some investment grade exposure).
Just go 60-40 or buy Vanguard Wellington. Don’t go lower than 50% in stocks, because inflation is scarier than deflation.
Easy enough?
It’s a discussion learning how others view and approach the issue, that’s all. Very clear it is handled in very different ways. What works best over time remains to be seen.
After 15 years retired we are still okay and I attribute that mostly to the income cushion over spending from the start, but we also have backups.
Get a Vanguard Target Date Fund and one has a 5-Fund portfolio. That’s the easiest approach and the only management necessary is determining which target date to use.
Vanguard TDF is another excellent one fund approach.
There are many good choices and people often spend too much time worrying between them.
I’m glad to see someone say that! My rollover IRA from my previous job is in a Vanguard TDF at Schwab. My current workplace accounts (403b and 457) are at Fidelity because that’s where my employer requires them to be, also in TDFs (the Fidelity versions). I called Schwab the other day to discuss the process of rolling my Fidelity funds into my Schwab IRA after I retire on July 1. The person I talked to seemed a bit surprised that I had TDFs and told me I’d get a dedicated advisor once my funds are rolled over. He seemed to think I need one. I think I’m doing pretty well.
Congrats on your retirement!
We are living in the golden age of the individual investor. It’s never been easier, cheaper and with more varieties of safe appropriate approaches for the common person.
Has it ever been easier to make investments and find good choices?
Here’s what I have chosen, in case the information is useful or at least interesting: Since retiring from teaching to a nonprofit CCRC at age 70 in 2021 with a 30/70 stocks/bonds+cash portfolio in index or index-adjacent funds all at Vanguard, my asset allocation has been on a rising glide path, now at 42/58, eventually aiming for 50/50 or maybe even 60/40.
My monthly SS benefit covers about half my CCRC cost, and a SPIA with 5% annual increase covers another 18%.
Since 2001 I have had flat-fee 5-year LTC insurance with 5% compound annual benefit increase that will more than cover my CCRC tier-3 or tier-4 care if I need it, and having it gave me a $60k discount on the CCRC entry fee.
I have a QLAC that will start in 2034, which I chose in case Social Security benefits are cut — unlikely, say many people, but being cautious has always served me well.
I take my RMD in November for use the next year. For my remaining expenses I put a portion of my RMD into Federal Money Market VMFXX in my taxable account, to be automatically transferred monthly to my checking account. This budgeted amount is 1.5% of my portfolio. The rest of the RMD goes into Tax-Managed Capital Appreciation VTCLX in my taxable account. In the taxable account I also keep a small portion allotted to Tax-Managed Small Cap VTMSX.
My tIRA is mostly Intermediate-Term Treasurys VSIGX and Short-Term Inflation Protected Securities VTAPX, with a small portion in Total Stock Market VTSAX.
My Roth IRA is mostly Total World Stock VTWAX and a small portion in Real Estate VGSLX.
I think your approach is valid. I too began at about 70/30 and sloped through 60/40, settling at about 50/50 after 7 years of re-allocation and withdrawals. I don’t spend all of the RMD and delay withdrawals from the Roth, although I did make one in 2023 because of medical bills and related expenses. Over a period of 9 years the value has increased significantly even after taking those RMDs. I may go back to a 60/40.
This is a great approach. Do you also do Roth conversions annually and do you have a plan for that?
Good question. No Roth conversions. Here’s why, and what I did instead: I’d been maxing out my TIAA 403(b) including catch-up and supplemental contributions. By the time I could afford to pay the taxes on Roth conversions, my independent school (no pension) began offering the TIAA Roth 403(b). Then later on, the two-year Medicare look-back would have hit me with IRMAA surcharges. I was a math teacher and did all my retirement and tax planning myself, and my priority for retirement was and continues to be simplicity and security. So rather than do Roth conversions, I decided to switch all my contributions to the Roth 403(b) as soon as it was offered. And the day after I retired, I rolled everything over to Vanguard.
For my wife and I the most fundamental element in our approach to inflation is simply to keep our monthly expenses well below our monthly pension/SS income. Said another way, while we like to enjoy our money, we save up to splurge on luxuries like travel. If we hit a rough time in the future, we’ve discussed many times how we’d cut the luxuries first. That, coupled with keeping a general awareness of our overall financial health will (we believe) go a long way to keeping us on the right track.
A Liability Matching Portfolio (LMP) built with delayed Social Security + TIPS ladder, as advocated by Bill Bernstein, is what appealed to me as way to tackle inflation during retirement.
This is exactly what we are doing with the caveat that the TIPs ladder is a rolling 10 year ladder and about 20% of our investable assets. The remainder is 60% stock and 20% bond funds/ETFs. The “liabilities” are the future gap-10 years out-between projected income and, in our case, all expenses (although some folks may use fixed expenses).
What’s an LMP?
Liability Matching Portfolio.
What is a Liability Matching Portfolio?
https://www.whitecoatinvestor.com/how-to-stop-playing-the-game/ is a good read on this topic as well.I too would highly recommend Bill Bernstein’s book, https://www.amazon.com/Four-Pillars-Investing-Building-Portfolio/dp/0071747052 !
Bill Bernstein discusses this term on pages 162-166 in his Four Pillars of Investing book. This section is titled An Alternative Way to Look At Retirement Income: The Liability Matching Portfolio and the Risk Portfolio.
The aim of retirement saving and investing is not to get rich, but rather to minimize the risk of becoming poor. The very best way to do that is to, in finance-speak, “defease your liabilities,” that is, to precisely offset your inflation-adjusted living expenses on a year-by-year basis.
Bernstein recommends building one’s LMP by delaying claiming SS security until 70 and closing any remaining gap with a TIPS ladder.
There was a recent discussion on Bogleheads you might find informative.
I also put the term ‘liability matching portfolio’ in the search box and a number of discussions with valuable information came up.
As always, I’d encourage you and others to avoid initialisms, referring to investments by their ticker symbols, etc. It may save the writer time, but it’s a great way to drive away readers.
Thanks Jonathan and I corrected my post above.
First and foremost….nothing is perfect. Many ways to address inflation involve incurring extra risk. My overall plan is to NOT go all in on anyone solution. So here is what I am doing to combat inflation:
1) Don’t assume level spending in retirement. I very much call B-S on the oversimplified mantra of “use 80% of your take home pay before retirement” or any amount of spending before retirement….70%…90%…110%…I dont care….life doesnt work that way.
I break up retirement into buckets for spending. They project what our spending will most likely look like. A few categories like healthcare, have VERY high increases from one phase to the next. Then there are categories with modest increases like food, utilities, automotive and family spending (spending on our kids or grandkids). Then everything else stays relatively the same (assuming real costs…not inflation adjusted). What we see….medical cost rise FASTER than our travel and entertainment costs slow down. Also food and fmaily entertainment costs go up with grandchildren as you mentioned.
Healthcare is the biggest X factor….we plan for 1% increase in all healthcare categories ABOVE inflation each year. THAT REALLY ads up by time we get to retirement….AND gets VERY VERY big by time we hit end of life (estimated at age 97). So Medigap policies compound up….out of pocket compounds up….unreimbursed medical expenses, premiums and all that other added in stuff.
Phase 1: retirement to age 62 (when I will take SS and medicare MIGHT kick in). The travel/adventure years (go-go-go years). We have extra travel baked into this, higher health care costs
Phase 2: age 62 – 68 – Less travel, more medical costs, way more food and family spending as we may have grandkids around here. Healthy entertainment budget still…this is still our Go-Go phase. Higher medical than phase 1.
Phase 3: 68-78. Slow-Go phase. Less travel, a little less entertainment/eating out. A little more grandkid spending. Higher medical than phase 2. Auto drops a little as we move to one car and drive less.
Phase 4: 78-85: Slow-go/no-go. Planning for 2 spouses but much less travel and a bit less entertainment. Grandkids’ costs start to reduce. Medical is higher. Extra support (grocery delivery/home cleaner) enters the budget.
Phase 5: No-go / 1 remaining spouse. Statistically, its unlikely well both be around (I have some health issues….so 85 is a little generous for me). Grandkid costs are heavily reduced, all variable expenses are reduced. Overall health is reduced because 1 person vs 2…but my wife’s share will be more. Driving less. More paid support.
Our most expensive phase…phase 2….travel…healthcare….grandkids…then they slowly reduce each phase and then they go down a lot when I pass at project 85 or sooner. Medical ALWAYS goes up though…by a lot.
2) Wait til 70 for the higher earner for SS. Honestly…we are planning for SS age to get bumped back to 73…but this will help us hedge inflation.
3.) Will have an unadjusted annuity (QLAC) for my wife which starts at 80. Between SS and this annuity….80% of her NEEDS will be met from 80-90 roughly.
4.) What about the spending gap for 90 and on…we have our Roth investments for that. We will have a multi-legged stool…investments in the roth with a 75/25 or 85/15 mix (torn on that still). This IS aggressive for a fixed income couple but we also have a large SS from my wife at age 70 (73), my SS and an annuity starting at 80. THIS PIECE….is our BIGGEST protection from inflation in my opinion.
5.) What about SORR – from retirement – 70…one of us could consult or work aprt time if we had a MAJOR meltdown.
6.) Also…we are planning to keep working part-time for 1-3 year PAST when we can retire for extra buffer/travel money. If a market meltdown happens just before we go part-time or during our 1-3 years of part-time work….we can just keep working to keep withdrawals lower during the down years (health permitting of course). We work desk jobs remotely now….but are open to more physical work like being a barista or airline/hotel desk clerk (for the extra travel perks)…health permitting of course.
7.) And if inflation rises above of our investments….simple…we cut back on the wants. We are pretty good at enjoying the simple things….so while big European vacations and eating out is fun and fancy…we can be very happy with a long weekend road trip staying at a hotel we paid with credit card points, packing a lunch from our hotel room and cooking at home when in town. The gets a little trickier in our later phases as we age as there is less budgeted for those things….but also…we also may have less concern of longevity risks in the later years as well (again…I have some health issues….wife may live to 105 though lol).
8.) We dont aim to die with 0 at 97….nor do we aim to live off pure interest or the 4% rule. We aim to have enough at age 97 to be worth about 40% of our starting networth. We can tap this for NEEDED spend (not wants) earlier if we need, or long term care….or longevity insurance (incase I live past 85 or my wife lives past 97). Otherwise…our kids/grandkids will inherit it.
9.) HELOC/Reverse Mortgage – we make NO plans for our home equity…so this is an additional fall back.
10.) Consider moving to medicare advantage from Medigap after I pass. Is it ideal? Not in a million years. BUT if it comes down to risking retiring 3-5 years later to ensure we ALWAYS have medigap and having a high risk of not enjoying ANY retirement…..or having a LAST RESORT of dropping from Medigap to Medicare advantage at age 88-97….we decided to take the later. That is a VERY personal call…especially considering Medigap is MOST beneficial over advantage in the later phases of life when you would use healthcare MORE. But for us…we are less likely to travel out of state for top care or even travel 1-3 hours away for care in our later years. That is one of the large medigap benefits wed want. So that become a mute point.
11.) I would 100% get a roommate if my wife unexpectedly passed. So this would give me a little extra cash, but more importantly, more social interaction and purpose.
12.) We are considering buying a 2 unit home to live in for retirement. Live in one unit rent the other….sell when we hit 75 or too old to maintain it. This could also offer a little inflation protection .
You did a lot of planning and used many assumptions, but I have to tell you after 15 years retired and at age 81 and 86 our actual experience has not been anything like your assumptions. Our 11 grand children range from 8 to 20 and our spending has not decreased.
Despite large spending, our out of pocket medical costs have been very staple and low. Premiums do increase, but not exceptionally.
I think your phase 3 is too early.
Go-Go/Slo-Go/No-Go bucketing is a very appealing concept that I’ve adopted. Could you please explain how you modeled this approach? Specifically, which components of your budget did you increase or decrease to implement it?
Healthcare expenses are particularly daunting to comprehend, especially considering the exploitative nature of the US healthcare system. When you incorporated the 1% annual increase in costs above inflation when Medicare kicks in, did you also consider any additional cost burdens?
Wow that’s extremely detailed and thought out. Presumably you have quite a big hairy number to start if you are planning on having 40% of net worth (real or nominal?) at age 97. Is residence included in your net worth?
What out of pocket medical costs are you concerned about when you have Medicare and Medigap? We have had both for many years and our costs have been limited to the annual Part B deductible and some Rx copays despite incurring hundreds of thousands in health care costs.
Our COLAs (SS and pensions) have run about 2/3s of inflation.
The main method we used was downsizing from our “forever” home to a smaller Condo.
And, luckily our investments – both pre- and post- tax – have had returns a bit higher than inflation.
We have been very lucky.
Very fortunate to have a full COLA on my pension under the old CSRS system. Newer federals are under the FERS system which leaves them more exposed
Inflation is one of a number of retirement unknowns, adding complication to a 30 year in-retirement plan.
There’s a lot of data available, and my personal experience goes back to the 1960’s when I purchased my first new automobile. (Prior to that I owned clunkers, switching them annually). That new car was about $1,850 including tax and delivery. Today I could spend this much on an electric bike; now that’s inflation! I did experience the 1970’s-1980s which included periods of high inflation. Inflation peaked at 25% in the 1970s and 14.76% in 1980. (In the 1980s my balloon note for a home construction loan hit 21% interest; Ouch!).
I “hope” not to experience this kind of inflation again, but it could occur.
Preparation has been gradual and continuous. My experience led me to live within my means, avoid debt, save more, work longer, invest prudently. However, my investments were more aggressive until I was fully retired. Today the equity portion is well-distributed, but does contain some commodities and gold miners as well as individual dividend-paying stocks. It is moderately aggressive.
My planning tools are adjusted for inflation. I use a slightly higher inflation value than the current, prevailing wisdom although never less than 3.5%. My “effective tax rate” for planning purposes is higher than the actual. My projected “rate of return” for my investments is based up that of the S&P 500, but is reduced to account for cash and bonds. For any other accounts the projected return is lower for planning purposes. My plan includes a future reduction in social security benefits. My annual living expenses are overstated to accommodate uncertainty. It assumes that I spend all of my income each year, although I do not.
I review early in the year at the time I am calculating RMDs and if necessary I adjust any of my assumptions. I occasionally stress-test my plan (what’s the maximum long-term inflation it can tolerate, minimum returns, etc.). I run a scenario which indicates how my spouse will fare after I have passed.
Combining all of the above provides a plan that allows a margin to accommodate increased costs, be it from inflation, misfortune, illness or whatever. I think that’s the best I can do.
I should add that we have Long Term Care insurance. Premium increases since 2014 have been 5% per year. LTC is not an inflation hedge, per se. It is a means for us to better control costs in retirement.
I retired in 2010 with a pension and SS plus our investments. Our pension allows COLAs only from trust fund profits. It is an ultra conservative pension system. Before retirement it had kept pace with inflation. Since I retired, we have only had a 1% COLA.
Despite a conservative AA, our investments have doubled during the past 15 years. We still have plenty of headroom in our spending, but our spending has declined a lot.
We have 50% of AA in equity, 25% in TIPS and the reset in various fixed income allocations. Over 50% of investments are in Roth and only about 15% in TIRAs. So we are in good shape with the tax man.
We do spend more on gifts and college for grandchildren and gifting to our 2 children. We have issues but I do not expect money to be one of them. Something we are very thankful for.
A mix of stocks, bonds, and Bitcoin. Stocks for medium-longer term growth, bonds for 1-5 years funding, Bitcoin for long-term growth. Bitcoin will be the last thing I sell.
If we stayed in NJ, our SS payments would more than cover our expenses, even if we took it early, so I’m really not concerned with inflation.
Wow! Never expected to hear that from someone living in NJ. You are in a good position.
I was going to give you a downvote! Just kidding. I certainly am wary of inflation, but worrying about it is counterproductive. I think a diversified basket of stocks held for the long term outperforms other assets after taking inflation into account. And my bonds are all short to medium term Treasurys, half regular, half TIPS.
Not worrying is good. But I’m not sure the great majority of retirees see it that way. Just wait until the SS COLA for 2026 is announced 🤑
What? Nobody concerned about inflation?😎
You’re not really concerned about inflation surely – that’s what your wodge of other investments is there for.
I think that’s what I said in the post.
Hey, Wednesday’s a slow day on HD….
Aside from the house we just built, SS is totally paying our way for now. We could easily match our SS income with a portion of our IRAs if necessary.
So we are ages 73 and 70 and not too concerned with inflation.
My main money concern is still potential long term care.
I agree with your last sentence. I am more worried about long term care (LTC) than inflation.
Our portfolio positions are 45% equities (2/3 US/1/3 international)/35% bonds (intermediate/short term/short term TIPS/10% cash (mostly federal money market). We are also both waiting until 70 to claim Social Security with it’s (imperfect) COLA.
LTC insurance was too rich for our income when we were raising children, and now with 1/2 my family dying with some iteration of dementia occurring in my late 50s/early 60s I’m sure no insurance company would offer a policy.
It’s the main reason we will not be giving away any of our significant wealth to charity, at least not predeceased.
If that is the case, you are certainly in a good, somewhat unique place.