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Author: gdett2 Big red star, 1000 posts Old School Fool Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1490  
Subject: Retirement Planning Figures Date: 9/7/2007 1:06 AM
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I retired a couple years ago and have been using Quicken to keep track of investments and have been using the Retirement Planner portion to track savings, etc through the end of our retirement.

The question I have is: What is a reasonable average annual inflation percentage for planning?

I have been using 4% for a pessimistic outlook.

Using that value and a 6% annual return on investments, we have enough savings to make it to the "end of the plan."

I would like to also have a more realistic value to look ahead with. I am guessing about 3.5% or a little less is "reasonable."

Any opinions?
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1081 of 1490
Subject: Re: Retirement Planning Figures Date: 9/7/2007 3:07 PM
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For planning purposes most would use 3-3.5%.

But historically, we know that inflation goes through long cycles. There was a time back there in the 70s when inflation got much higher.

Planning your portfolio to track changes in inflation rates has advantages. Otherwise if rates trend upward, you may need to do some belt tightening.

Of course, the truth is no one knows the future 30 years out. Every plan will probably require some adjustment over the years. All we can hope for is to formulate a reasonable plan using the best tools available.

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Author: pedorrero Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1082 of 1490
Subject: Re: Retirement Planning Figures Date: 9/7/2007 6:40 PM
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Wow! Some activity on the board! Great. My $0.02 (depreciated by inflation, of course):

As a life long cynic, may I point out: even the past's economic statistics (e.g. the inflation rate) should be taken with a grain of salt. The often quoted figure I think is around 3% per year.

It is not now, nor has it ever, been in officialdom's interest to report the TRUE rate -- even allowing for reasonable adjustments (not so reasonable ones too?) I for one don't believe the current rate is the low rate(s) quoted. Come on: they leave food and energy out of the "core" rate? What BS. Look at health, energy, and food costs for the past few years and tell me with a straight face that inflation is only 4 or 5%. Probably more like 10% or more. Good luck with your planning, though!

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Author: Imaginistics Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1083 of 1490
Subject: Re: Retirement Planning Figures Date: 9/7/2007 9:15 PM
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Hello.

Good questions, hard questions, the ones we all have :-)

One small suggestion..one way to get a better handle on your
expected rate of inflation (kind of analogous to getting
a better life expectancy figure by looking not at averages
for the entire country for narrowing to folks who match
your health profile) would be to try to get, at least a bit,
more confidence by looking into your 'personal inflation rate'

Don't know of a formula but some questions to ask oneself may include:

..how much health care will we likely need (compared to the average
american, about the same, more than average, less?)

..what kind of care will we most likely want/need? some will
have a higher rate of increase in the coming decades, than other
kinds

..how much driving, and airplane flying will we do? (energy prices going up)

..if you're rent/mortgage-free, how much will repairs
and property taxes likely to increase in my area? will go
up faster in some areas, slower in others

You know yourself much better so your list will be much
better than mine but this is just as a way to get
one started on the kind of process where at the end you might
decide what your household's inflation rate might be ,
or at least whether it's likely to be higher or lower or
about the same as the 'average' persons' inflation rate..

Hope this is helpful. By the way is that 6% after inflation
or before? Are you only assuming 2%/yr after inflation? That would be on the very low side, perhaps unrealistically so, unless your
equities are a very small portion and it's mostly bonds and cash..

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1084 of 1490
Subject: Re: Retirement Planning Figures Date: 9/8/2007 8:07 AM
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My view is that the key is to to learn enough to effectively manage your own investments, inside or outside your IRA or other tax sheltered investments.

I do not follow any specific percentages. They vary from year to year, depending on my/our needs, but I work at also sustaining my account at or above previous levels. I do not necessarily recommend this for everyone. We all need to do what works for US.

I've worked at managing my own investments for several years, and have learned that, while one should not hop in or out of things precipitously, one should be wary and be able to change when warranted.

Right now, the market and the economy are in a "tricky" period. Be careful. Look closely at your investments.

Good luck.

Vermonter

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Author: Howie52 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1085 of 1490
Subject: Re: Retirement Planning Figures Date: 9/8/2007 2:46 PM
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"I would like to also have a more realistic value to look ahead with. I am guessing about 3.5% or a little less is "reasonable."

Any opinions? "

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The future is always cloudy. Basically, a lot depends on your
own situation and habits. As folks age, their spending habits
change - and the impact of inflation can be offset by changes
in habits.

Food and energy costs have the least flexibility at the low end
yet these are typically not included in inflation analyses.

So, I am no longer certain that inflation impact is as great a
concern as many analysts claim or as many pre-retirement folks
fear. The cost of milk is critical. The cost to heat a home is
critical. If you have a lung diease, the cost of oxygen cylinders
is critical.

So, the issue becomes very individual and very personal. As such,
other folks' opinions only have an influence as a general guide -
and we are all reading the same sources, using the same formulas,
and worrying in the same avenues.

Howie52
I am worrying less as I see my kids finally get through college
and start their own lives. DW and I can survive and have enough
fun for us on very little if need be.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1086 of 1490
Subject: Re: Retirement Planning Figures Date: 9/8/2007 5:30 PM
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"Come on: they leave food and energy out of the "core" rate? What BS. Look at health, energy, and food costs for the past few years and tell me with a straight face that inflation is only 4 or 5%."

But they are still going to argue that low interest rates have kept housing costs very low for quite a while. And all those imports from China and Mexico have kept prices down in the stores compared to what they would have been otherwise. Threats of outsourcing have kept down labor demands for raises.

Food is still inexpensive in the US--especially if you buy raw foods and cook them. Convenience foods and eating out are another story.

Yes, we are all well aware that some prices seem constantly to be rising. But others seem to be moderating. Look at computers, VCRs, electronics of all kinds. You get much more for your money than you used to.

People have always complained about the govt indexes measuring the wrong things. But at least they try to arrive at fair numbers.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1087 of 1490
Subject: Re: Retirement Planning Figures Date: 9/11/2007 8:49 PM
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<<It is not now, nor has it ever, been in officialdom's interest to report the TRUE rate -- even allowing for reasonable adjustments (not so reasonable ones too?) I for one don't believe the current rate is the low rate(s) quoted. Come on: they leave food and energy out of the "core" rate? What BS. Look at health, energy, and food costs for the past few years and tell me with a straight face that inflation is only 4 or 5%. Probably more like 10% or more. Good luck with your planning, though!

>>


Yes, I think your criticism is justified. Inflation figures caused all manner of political problems in the 1960s and 1970s, padding them is a logical response by government to avoid problems in the future.


The traditional solution of government is to inflate your way out of problems is you can ----the Democrats even ran on "free silver" and against the gold standard in 1890 or so, withy William Jennings Bryan famously procaliming that Americans should not be crucified on a "cross of gold."


We inflated away the WWII debt in the 1960s and 1970s along with the budget deficits of the time, and conveniently eliminated convertibility of the currency into "free silver" at that time as well, having already eliminated the cross of gold in 1932.


So I imagine that more inflation will inflate the dollar yet more.

But rather than try to pick a figure, I'd rather pick the investments that will allow people to fend off bouts of inflation. Stocks and real estate are good for that ----perhaps we have already seen home prices reflect the underlying inflation in the economy?


So I ask what investment assets might people buy to protect themselves from inflation?


Too bad Harvard wont sell off future college admissions or allow people to invest in the Harvard student slot which could be sold on the free market for whatever it might bring in a future year.





Seattle Pioneer

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Author: sunrayman Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1088 of 1490
Subject: Re: Retirement Planning Figures Date: 9/11/2007 11:18 PM
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. . .

Too bad Harvard wont sell off future college admissions or allow people to invest in the Harvard student slot which could be sold on the free market for whatever it might bring in a future year.




++++
++++



The cost/price of college tuition is an excellent example of [unlimited] gubbermint money chasing a rather inelastic supply of college student slots.

sunray
a man who paid for his kids in the 90s

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Author: Imaginistics Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1089 of 1490
Subject: Re: Retirement Planning Figures Date: 9/12/2007 6:12 PM
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The cost/price of college tuition is an excellent example of [unlimited] gubbermint money chasing a rather inelastic supply of college student slots.

Unlimited? If only that were true (ok, I'm also against
unlimited..but if only there was an increase or even
flat level of support..) instead, government support for state schools have
been either slashed or significantly cut back, leaving
schools with no choice but to raise tuition, increase class size,
or create the Coca Cola Wing of this or that building, usually
some combination of the above..leaving parents and
students with higher bills.

With terms like "gubbermind" sounds like you have some pretty
strong views the debating of which belongs in other boards, not
this one...but the above is For the Record on government support for state colleges and universities.

As for private schools, there's some sky high tuitions, and there's
a cost/benefit analysis for parents and students whether this
or that Name is worth the cost..

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