Go to main HumbleDollar Forum page for a lively discussion.
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?
QUINNSCOMMENTARY 
So, ironically, it’s good news, I guess, if SS is one hundred percent of your income. It’s almost a third of ours, but a hundred percent for some of my family. I doubt if they follow Humble Dollar.
Our pensions, both, are inflation adjusted, but only to a two percent/year maximum. *
Our saving grace was downsizing to move nearer to family when I was diagnosed with cancer. Slightly smaller house, same monthly payment, with about two hundred thousand equity going into investments. How common is this? Not the cancer, but downsizing to save expenses and/or build capital.
The biggest danger for us is the possibility of one, or both, needing extended care. I think we have enough income and savings to cover that, if we’re careful, but only for a few years. I would much rather see our estate go to the heirs, obviously.
Government employees. It is illogical to even ask if government employees are ‘overpaid’ compared to private.
The general rule, public employees earn lower salaries but have better benefits, and, in total compensation…
Lowest paid public employees have higher total compensation than equivalent private workers. (‘Much, much’ better at extreme low end.)
Highest echelon of public workers, even with benefits, earn less than similar private workers. Again, ‘much’ less at the extremes.
That leaves the middle group (me) who earn roughly the same as equivalent private workers.
As it should be, in my humble opinion. Institutionalized redistribution. With about one in seven Americans being public employees, ‘income inequality’ in total would be much worse than it is now.
LikeLike