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The problem is no one owns in the cpi. Ownership is converted in to a formula for renting . The cpi results are skewed in that respect.
everyone is figured as renting . there is no real ownership calculated in.
new studies are indicating while certain costs do rise overall the spending drops in the 70-80 range to offset the increases. spending is smile shaped . higher in the early years from doing and traveling , followed by a big drop , followed by a rise after 80 for healthcare ,gifting and charity.
overall the drops have been found to negate much of the increases especially when a fixed rate mortgage or paid home are in the equation.
Last edited by mathjak107; 07-16-2014 at 10:47 AM..
True, CPI is just another metric. It may or may not reflect your lifestyle. Paying off the mortgage and putting the last kid through college will cut my expenses greatly . . . only to be replaced with travel and a new Canon 5D and a couple of L lenses. I know you can relate to that in a Nikon kind of way.
Yep i sure can relate. We finally reached that travel mode since i went part time last week.
The cpi can be very misleading when it comes to housing costs. It was changed years ago to a method of computation where every one rents and ownership is not in the equation.
The reality is even with taxes and maintaince rising with a payed off home little inflation adjusting is actually needed . That really cuts saving requirements.
It is funny how no calculators and few planners consider this fact.
It's more about the income stream than the money amount. When interest rates were at 6%, $300K in a 401K yielded $18,000 a year. Add that to $30-$40K SS and 2 people can retire on it. Add that to $30 to $40K in pensions and you have more than you need. Today that $300K in a 401K might yield $4500 per year, so it's SS and Pensions, still doable. But if you have no pension you are in a bind trying to live on SS and that $4500 per year. Today, even $1 Million in savings is worth less than a $45K pension. And you can't rely on the stock market, because when those bubbles pop you are down to 1/2 your equity in a matter of months. So save what you can, plan to be debt free several years before you retire, then start living on whatever income stream you estimate you will have a few years before you retire. Save the rest. If your income stream will be $60K a year, then live on $55K a year for a couple of years before you retire. If you can do that you should be fine.
Bob, excellent post, and so true.
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