Elizabeth Richardson wrote:
- quote -

Well one good start might be eyeballing the components of CPI to see how
it compares to your own spending, and your own projected spending.
Doesn't look much like mine, for example, and considering retirement, a
lot of my spending categories ("bicycle racing equipment, travel, and
entry fees") aren't going to ramp up at 4% a year.

Here are some of good pages on this topic - lots of reading if you want
to dig - see the "Relative Importance" tables to see what goes into CPI:
http://stats.bls.gov/cpi/home.htm
http://stats.bls.gov/cpi/cpifaq.htm

It might make sense to plan for those critical, core expenses to ramp up
at 3-4%, when determining how much money you'll need in retirement. But
at the end of the day that's going to be a relatively low number, I
think, at least for most of the people who actually bother to run
through this and plan their retirement in advance. My thinking is that
when someone says they need $80k/yr or for that matter $120k/yr during
retirement it includes a lot of discretionary spending. Should you plan
to ramp all the discretionary stuff up at the CPI rate? Rhetorical
question...but for a lot of people that's not a realistic picture of
what retirement will be like, and might end up with too-high saving now.

-Tad

In this thread:

- quote -

And in thread: Asset Allocation - Roth vs. Traditional IRA/401K

- quote -

It seems clear that one must take into account the rate of inflation when
doing financial planning. It seems the question is how to compute one's own
rate of inflation. Surely one can simply use the national rate of inflation
for general planning purposes, but as one gets closer to retirement, figures
closer to ones own spending/expenses will be valuable. Elle has obviously
been thinking about this. Anyone else?

Elizabeth Richardson

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
- quote -

Yes.

- quote -

I thought we were too.

- quote -

We must be having some sort of miscommunication.

I own my house outright; no mortgage. If I want to estimate the annual
inflation rate for me, I should look strictly at my annual costs for food,
utilities, clothing, transportation, health insurance, and so forth.

Someone else (who consumes the same amount of food, utilities, clothing,
transportation, health insurance etc., say) may not be so lucky and have to
rent. If his/her rent increases are smaller than the increases in
everything else (food, etc.), then this person's inflation rate will be
lower than mine, even though his/her annual expenses are higher.

- quote -

We're interested in inflation for the purpose of financial planning. Plenty
of retirees own their homes outright. The national (or even regional) CPI
is helpful, but it may be way off if one does not subtract the effects of
rent increases.

- quote -

scenario I posted does happen.


======================================= MODERATOR'S COMMENT:
Future posters to this thread: please tie in to financial planning.

"Elle Navorski" <elle_navorski[at]nospam.earthlink.net> wrote in message
news:AH4Qd.78$kU3.57[at]newsread1.news.pas.earthlink.net...
- quote -

Higher than what? Higher than the CPI that includes this information? I
thought we were comparing personal inflation rate to national inflation
rate. If that is the case, then you cannot simply omit housing costs. If you
do, then you are comparing apples to oranges. Some people have housing
costs, i.e. they have a mortgage (and taxes, upkeep). Do you want these
costs omitted simply because the inflation rate is 0%? If you do, then you
are comparing apples to oranges. In addition, I note that the December CPI
figures show that housing costs have increased faster than food costs have
increased.

Elizabeth Richardson

First, the CPI is based on urbanites. It uses apartment rent increases in
its formula.

Second, if rent increases are smaller than food etc. increases, then
omitting rent altogether from the CPI and inflation calculations will yield
a higher rate of inflation.

This is terse because that's the moderators' (generally admirable) goal.
Email me if you want a quick example of the above.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
- quote -

On Sun, 13 Feb 2005 13:14:31 CST, "Dave" <dave_and_darla[at]Juno.comwrote:

- quote -

Wrong. I rolled over the 401k I had with my former employer into this
one. You are right regarding contributions.

- quote -

my rollover only.
The contribution/matching share of my 401k over the past
5 years certainly would have done better in any of the funds - except
perhaps money market, where I had it - than the 5 year ann avg.

--Vic

Hi Vic;
At 58 you have to consider a time frame of 25 to 30 years.It is
important to have investments that will grow. Would suggest that you
check out the funds of T Rowe Price, Fidelity and Vanguard. I have
Rollover IRA's with T Rowe Price, some low risk like Capital
Appreciation and Equity Income that has returned 13% since inception.
Their Balanced (PRBAX) has 10% return inception 12/39. Ofcourse past
preformance is no gaurntee of future results;but then there is no
gaurantees in life we don't know if we will wake up tomorrow. That is
in God's hands!!!!
The best of luck with your investing
Richard

Victor Smith wrote:
- quote -

These are the returns on money invested at the beginning of the 5-year
period. Since you didn't have any money invested at the beginning of
the 5-year period, those numbers are not applicable to you. Had you
(and possibly your company, if there is matching) been making
contributions every payday, you would have seen substantially higher
returns because of Dollar Cost Averaging. The more the fund lost in the
middle of the 5 years, the higher your rate of return would be at this
time.

Dave

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> writes:

- quote -

http://www.bls.gov/cpi/

For the entirety of 2004:
including food and energy: 3.3%
excluding food and energy: 2.2%
medical care alone: 4.2%

January 2005 numbers will be out in a couple of weeks.
Lots (LOTS!) more details on the site.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

On Sat, 12 Feb 2005 04:51:53 CST, efflandt[at]xnet.com (David Efflandt)
wrote:

- quote -

that, since I'm always running across
-------------------------------------------- NOT FDIC INSURED - MAY LOSE VALUE - NOT BANK GUARANTEED
--------------------------------------------
at BankOne website references to IRA's. That caveat may apply to
securities/funds only. I'll check it out. In fact I have a small CD
IRA there already, established before I had a 401k. It should be a
simple matter to confirm whether or not it is FDIC insured.
Well, maybe not. I just found and waded through the 12 page fine
print IRA document. No mention of FDIC. And likewise for the IRA
annual statements I've found. It's clear I have to talk to BankOne
and have them point me to a written declaration to settle that
question.

--Vic

On Fri, 11 Feb 2005 18:54:35 CST, John Cowart <cowartmisc1[at]yahoo.comwrote:

- quote -

*is* the money market.
The funds offered and the average annual total returns for the last 5
years - which coincidentally is how long I have been in the 401k - are
as follow::
Money Market 2.9%
Intermediate Term Bond Fund 7.8%
Balanced Fund 3.3%
Large-cap S&P 500 -1.9%
Small-cap Russell 2000 5.8%.
International Equity -1.3%

Had I been evenly diversified among the offered funds I would
have garnered a whopping 2.76% annual return.
Hard to imagine a 5-year spread CD "portfolio" doing worse.

--Vic

"John A. Weeks III" <john[at]johnweeks.com> wrote
- quote -

Well, it sounded like you thought CDs and bonds were pointless, because
they don't necessarily keep up with inflation. I trust there was a
miscommunication, and we agree putting a part of one's portfolios in CDs
and/or high grade bonds may have merit, depending on one's age.

- quote -

That's not the standard rule when inflation rates are announced. Typically
the number is given to the nearest tenth of a percent...

My bigger point was actually supposed to be that the inflation rate has
been well below 3% for certain recent years.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
re inflation and the Consumer Price Index:
- quote -

Elizabeth,

Yes, I agree. I dug a little at the Burea of Labor Statistics' CPI site and
was looking for more on the breakdown. This is because I am lucky enough to
own my home outright, and so I'd like to somehow extract the effects of
"housing increases" from it. Having the trends would help me plan a bit,
along the lines of some of my other posts here on investing for income and
growth. Also, this in the vein of the differences you described between
your own situation and the assumptions of the CPI model.

About 18 months ago I started throwing my monthly costs on a spreadsheet.
(I think I got this from _The Millionaire Next Door_). I imagine I'll end
up using this as my best guideline for inflation of the costs of utilities,
homeowners' association fees, food, transportation, etc. over the years.
Not that it's all that critical. I think my higher priority should be
making sure I sock away enough for medical care in old age.

On Fri, 11 Feb 2005, Victor Smith <victorfsmith[at]earthlink.com> wrote:
- quote -

BankOne CD's are FDIC insured, although, not necessarily the best rates
around. My IRA CD is BankOne, but it was a 5 year from early 2001 to
2006, so better return than current CD's. The IRA qualifies me for
Premier Checking (free, no min. balance, and tiny interest on checking
balance). Their website does has no details about IRA's, but IRA CD's
should be no different than any other CD.

- quote -

If all you want is an IRA CD, I cannot see why there would be any fee at
all. You just need to determine the length of term you want (interest
increases with length).


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

John Cowart wrote:
- quote -

ditto bond funds, especially short-term bond funds
ditto broadly diversified stock funds if held long enough, which sounds
like it will be the case for at least a portion of this money (you don't
spend it all at retirement day)

Of course it's semantics - to me it needs to be a crap shoot to be
"speculative." Owning a piece of corporate America isn't speculative to
me, by that standard. As long as businesses exist to earn profits,
stocks will have value. And once they don't we have other things to
worry about, like the bleakness of living off beet soup (2005
update:...make that "living off kim chee").

Really though, the OP would benefit from spending some time learning
about investments generally. Stay in money market, CDs, etc till then
but unless you're loaded it really will cut into your retirement income
to be so conservative with the dollars. There are other ways, even if
you don't invest directly in stocks or bonds or mutual funds. In fact
some of the annuity products out there may be right up your alley - to
get back to that other thread on why there are some people who buy
annuities through their IRA.

-Tad

"Elle Navorski" <elle_navorski[at]nospam.earthlink.net> wrote in > Also, I don't follow your reasoning that omission of housing costs must
- quote -

Radio message on the 1-1/2%, I'll have to see if I can find the cite. I
wasn't removing housing costs from the CPI, because I still have a house,
rather I was thinking that my own cost of housing inflates at 0%. Certainly
one large component at 0% must reduce the overall rate, no? I thought the
way you compute inflation is to add up all your costs, and compare this
total to the last time you added them up. A person with a fixed mortgage
still has a housing cost, and a person with a paid-up mortgage will still
have housing costs, just not a mortgage component. My cost of shelter isn't
free last time I looked.

Elizabeth

Victor Smith wrote:
- quote -

Calling Stable Value funds "speculative" is wildly pessimistic. In real
life, they function almost exactly like money market funds, only they
have a better rate of return.

John Cowart

"Elle Navorski" <elle_navorski[at]nospam.earthlink.net> wrote in message
news:fs7Pd.6025$mG6.4000[at]newsread1.news.pas.earthlink.net...
- quote -

Elle - just went to the government site for CPI and you are right. Don't
know what I was hearing on the radio. I note however, that the rate for all
items less food and energy is only 2%. In addition, the Bureau of Labor
Statistics includes: "In particular, the upturn in prices for new and used
vehicles and a larger increase in shelter costs accounted for almost
three-fourths of the acceleration in the index for all items less food and
energy."

As I was looking at the list, I got to thinking. The overall rate is
predicated on housing, for instance, being a certain percentage of a
person's costs, as are transportation, energy, and all the other components.
If an individual's own "market basket" differs in the make-up, then that
individual's personal inflation rate will be different, perhaps much
different, than the published inflation rate. In my example of a fixed
mortgage, those individuals have a lower increase in housing costs, which is
listed as 2.5%. And, speaking personally, I was astounded in another thread
to see that someone had 133,000 miles on a 4 year old car. My 2000 Taurus
has just under 20,000 miles. Obviously, my cost of transportation is very
different (CPI lists transportation as having a 5.2% rate). I drive so few
miles per month that a $.25 increase in the price of gas doesn't affect me
very much, even though that represents ~12.5% increase in the price of fuel.
(And to answer questions about how my mileage is so low, I live about 2
miles from work, don't have kids to play taxi for, and go to the grocery
store once a week in our other vehicle, which gets used only a couple of
days a week to run errands - another 4 year old vehicle with 20,000 miles.)
The price of energy was the fastest rising component at 10.4%. This, too,
didn't affect me much as I heat with electricity. We have hydro-electric
power and haven't had a price increase since I moved into this house 20
years ago. So, maybe I just "wanted" to hear that inflation is 1.5%, since,
for me, inflation isn't particularly noticeable.

Elizabeth

On Fri, 11 Feb 2005 08:39:52 CST, "HW \"Skip\" Weldon"
<skip5700removethis[at]hotmail.com> wrote:

- quote -

There would be no charges or losses for the rollover.

- quote -

Googling doesn't find many offered, and it *appears* there
may be rules pertaining to state residency.

- quote -

but I think I'll give them a call for advice in setting it up, which
may be worth a fee.

- quote -

know the outcome, even if it ain't interesting.
--Vic

On Fri, 11 Feb 2005 12:03:11 CST, "Elle Navorski"
<elle_navorski[at]nospam.earthlink.net> wrote:

- quote -

At least work where I have enough income to save money.
I don't need to increase my savings, just protect it and do my best
to keep its growth close to inflation. The 401k money market isn't
doing it.

--Vic