How did your pre-retirement calculations compare to reality once you had retired ?

cfw1994

AlanP_2 said:

michaels said:

MK62 said:

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

RPI sort of assumes you don't change what you consume in response to rising prices - for example a lot of us may be using less central heating and more heated throws/oodies in response to the gas price increase which is cpi behaviour rather than rpi.

Sorry. I don't get that.

If I use less of the more expensive electricity / gas to heat my house then my inflation rate hasn't reduced even though my payments may have done.

Same as if I buy 6 bananas a week instead of normal 8 my inflation rate hasn't reduced.

I understand what you mean….but if you view your rate of inflation at a higher level than simply the price of individual items, it kind of has 🤷‍♂️

If I spent £1000 last year on energy, and this year costs me £1,100, my personal rate of inflation is 10%.
If I changed my behaviour - maybe I move company, maybe I turn the dial down on the heating, maybe I wore fleeces so I don’t notice the cold! - and used less this year, paying only £1,050, I have effectively halved my inflation rate for fuel, even though the rate ‘as bought the year before’ went up more...

There are masses of ways to reduce your personal inflation rate.
Doing the annual car/house insurance dance instead of blindly accepting a rise (one of our car renewals rose by over 70% this year….t’was that time to move companies!). Negotiating on cable TV, maybe even rotating streaming services to drop one for a year, finding a cheaper sim-only deal, or changing shopping habits, to name but a few.

IvanOpinion

My intention was to retire at 55, yet here I am, nearly 7 years later, still in work. Why? I hear you ask.

I love my job and the people I work with, I am entitled to infinite leave (so have no trouble getting time off for holidays) and I have realised I have no real hobbies outside of work - plus, I have not yet reached the point were  watching day time TV, going to shopping malls or driving around the countryside visiting garden centres and old lumps of rock fulfils my mental needs.

I am getting obsessive about the numbers though. Using the 4% rule I know that I could currently retire on more than my current take home salary (and, in a few years, state pension would be on top of that), so despite deep down knowing I have enough money to see me through my retirement, I still worry that there isn't enough.

I am also struggling with the concept of changing from being a saver into a spender.

Nebulous2

cfw1994 said:

AlanP_2 said:

michaels said:

MK62 said:

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

RPI sort of assumes you don't change what you consume in response to rising prices - for example a lot of us may be using less central heating and more heated throws/oodies in response to the gas price increase which is cpi behaviour rather than rpi.

Sorry. I don't get that.

If I use less of the more expensive electricity / gas to heat my house then my inflation rate hasn't reduced even though my payments may have done.

Same as if I buy 6 bananas a week instead of normal 8 my inflation rate hasn't reduced.

I understand what you mean….but if you view your rate of inflation at a higher level than simply the price of individual items, it kind of has 🤷‍♂️

If I spent £1000 last year on energy, and this year costs me £1,100, my personal rate of inflation is 10%.
If I changed my behaviour - maybe I move company, maybe I turn the dial down on the heating, maybe I wore fleeces so I don’t notice the cold! - and used less this year, paying only £1,050, I have effectively halved my inflation rate for fuel, even though the rate ‘as bought the year before’ went up more...

There are masses of ways to reduce your personal inflation rate.
Doing the annual car/house insurance dance instead of blindly accepting a rise (one of our car renewals rose by over 70% this year….t’was that time to move companies!). Negotiating on cable TV, maybe even rotating streaming services to drop one for a year, finding a cheaper sim-only deal, or changing shopping habits, to name but a few.

The economic theory is that inflation causes 'demand destruction' people stop buying things when the price goes up too much. I'm struggling to understand why that hasn't happened faster than it has.

We've certainly taken steps to reduce our costs, using less utilities, fewer branded foods, simpler meals etc. 

While not paying a great deal of attention to budgeting, I've always screwed expenses down - at mobile renewals, changing utility providers, getting comparison quotes for insurances etc. Doing the same for other things that have had big rises seems quite intuitive. 

At the same time I'm trying to reward people who haven't increased prices. Our favourite chip shop has been very modest with their price rises, and we've been deliberately trying to give them more trade. I think they have benefited from that. I used to turn up and place my order, now I need to phone ahead to order, to avoid a long wait in the shop. 

Nebulous2

IvanOpinion said:

I am also struggling with the concept of changing from being a saver into a spender.

You and many other people..... 

I have a reasonable DB pension, which meets most of our needs. It feels much like my previous monthly wage. Drawing down on our capital always creates some angst.

I shudder to think what a parsimonious person goes through on a regular basis in drawing down from a DC pension pot.... 

Linton

AlanP_2 said:

michaels said:

MK62 said:

Linton said:

I don’t know what data people use when asserting CPI  is a poor measure of real inflation. I have full spending data going back more than 20 years with fully comparable data for 15 years.. That shows that CPI is a pretty good measure of increases in basic day to day expenditure, if anything a bit too high. One problem I guess is that people notice increases more than they notice decreases. Also perhaps one changes detailed  spending choices rather more quickly than they are reflected in the CPI basket.

Looking at the weightings of items in the "baskets", it seems to me that RPI might have been a more representative measure of inflation reality for the average person/household - over the last few years at least.

eg......

Energy  CPI=4.9%  CPIH=4.1%  RPI=7.4%

C. Tax   CPI =N/A   CPIH=2.7%   RPI=4.4%

Of course, everyone's individual rate of inflation might be different.....but we are talking "on average".....as are the inflation indices.

RPI sort of assumes you don't change what you consume in response to rising prices - for example a lot of us may be using less central heating and more heated throws/oodies in response to the gas price increase which is cpi behaviour rather than rpi.

Sorry. I don't get that.

If I use less of the more expensive electricity / gas to heat my house then my inflation rate hasn't reduced even though my payments may have done.

Same as if I buy 6 bananas a week instead of normal 8 my inflation rate hasn't reduced.

Yes but what is important in retirement financial management is the actual ongoing cost of what you consider an acceptable standard of living, not what some national average statistic may state. 

if you can mitigate an increased cost of something by switching to an equivalent alternative or being more careful with avoiding waste inflation is irrelevant. It may well be the case that many other people will do the same thing. This change in behaviour will be reflected in future inflation data. But you can react to price changes much faster than is possible with national statistics.

Linton

Nebulous2 said:

IvanOpinion said:

I am also struggling with the concept of changing from being a saver into a spender.

You and many other people..... 

I have a reasonable DB pension, which meets most of our needs. It feels much like my previous monthly wage. Drawing down on our capital always creates some angst.

I shudder to think what a parsimonious person goes through on a regular basis in drawing down from a DC pension pot.... 

You get used to it.  After years of savings benefiting from cautious planning the reasons for angst reverse. Do I really want to die leaving my beneficiaries able to enjoy a far more comfortable life than mine? 

Albermarle

I shudder to think what a parsimonious person goes through on a regular basis in drawing down from a DC pension pot...

It's not that difficult. You just have to think that is what you built it up for so now the strategy is successfully working. Or if that does not work just think what it would be like if you did not have a pot to draw down from.

coyrls

Nebulous2 said:

IvanOpinion said:

I am also struggling with the concept of changing from being a saver into a spender.

You and many other people..... 

I have a reasonable DB pension, which meets most of our needs. It feels much like my previous monthly wage. Drawing down on our capital always creates some angst.

I shudder to think what a parsimonious person goes through on a regular basis in drawing down from a DC pension pot.... 

As somebody who draws down from a DC pot and has no DB pension, I don't suffer the angst that you suggest.  It really depends how you view your DC pension.  I see it as the source of my income, not as savings.  I do have savings outside my pension and am able to add to those savings from my source of income (my DC pension).  I can then spend from my savings in the same way that anybody else with an income would, for example on one off items, holidays and emergencies.

Bostonerimus1

Nebulous2 said:

IvanOpinion said:

I am also struggling with the concept of changing from being a saver into a spender.

You and many other people..... 

I have a reasonable DB pension, which meets most of our needs. It feels much like my previous monthly wage. Drawing down on our capital always creates some angst.

I shudder to think what a parsimonious person goes through on a regular basis in drawing down from a DC pension pot.... 

I wanted to avoid relying on DC drawdown in retirement because of the uncertainties in my income models, even if the bad scenarios had very low probabilities, and I wanted the simplicity of having cheques come in every month that are not connected to the stock and bond markets. So I took a job with a DB pension and bought (and paid off) a rental property. Now I can basically ignore the size of my DC pot and the ups and downs of the markets and that keeps my blood pressure stable.