What Was Our Personal Rate of Inflation in 2014 and How Does It Affect Our Retirement Plan?

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Neither my husband nor I work for the government or any pseudo-governmental companies so we are not getting an indexed defined benefit pension when we retire. We are not getting any kind of retirement benefit that will increase with the rate of inflation, other than our CPP and OAS. That makes it important to me to know roughly what rate of inflation we might expect in retirement because any inflation means that what our income can buy will diminish over time. So what was our personal rate of inflation for 2014 and will it impact our retirement plans?

It’s Worth Tracking Your Expenses Even If You Are Saving Lots of Money

We don’t budget the “normal” way. We plan on meeting our bills and saving for various short- and long-term goals and then we spend what we want. Our hobbies are low cost and very satisfying. So usually we end up with some extra that we add to our long-term savings.

We do track our expenses though.

And at the end of the year, I back calculate how much we spent on discretionary things to ensure it hasn’t increased dramatically over previous years.

Tracking our expenses lets me spot things like leaking faucets and the long-term trend downwards in the price of natural gas. That helps avoid complacency in planning for retirement: eventually that nat gas is going to go back up and probably even above what we paid in the early 2000s.

Adding up the monthly bills also lets me estimate what our personal rate of inflation was for the previous year or years.

How Much More Did 2014 Cost Us than 2013?

And the actual retail value was….

4.3%

Ouch!

I knew we paid more for nat gas last year because of the colder winter (and various other reasons.)  Our usage climbed about 20% and so did our cost.

And I knew that our property taxes had climbed again thanks to local government issues.

But I had no idea the total was so bad.

Our electricity costs, for example, rose 10%. But our hydro usage only increased less than 3%. Thanks Ontario Hydro! I remember they said they were going to shoot up the costs for all times of use but somehow I didn’t expect to see it actually happen.

And our water costs increased 10%, even though the volume of water we consumed stayed the same. Crumbling infrastructure” comes with a high price tag.

How Does This Personal Inflation Rate Affect Our Retirement Plans?

Well, it makes the beach house in the tropics look increasingly unlikely.

4.3% means we might have to work longer or spend less in retirement. We could try investing for higher returns, too, but discussing that would take a whole separate article.

Sheesh. I think I’d better go have a drink to recover from this shock. It can’t be water, though: I can’t afford a higher usage bill on top of the increased rate. Maybe I’d better go squeeze some of those crabapples still clinging to the tree: I can only hope they’ve fermented.

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Was your personal rate of inflation close to the CPI that Ottawa calculates? Or do you wonder what on earth they buy and live on to get such a low rate? Please share your views on whether you are losing ground to inflation with a comment.

Trying to Pay for All Our Expenses Using Dividend, Distribution and Return of Capital Income Only

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Each year, I track our expenses as the bills come in and get paid. At the end of the year, I add it all up and start comparing to previous years. I’m curious about my personal rate of inflation. I’m also looking for interesting trends like the long-term drop in the price of natural gas which could lull me into a false sense of security about being able to meet that need in the future. And, recently, I’ve started looking at the numbers to see if it would be possible to pay for our expenses using only the income from our investments such as our dividends, distributions and, in the case of REITs, our return of capital.

What I Found Doing the Review of Our 2014 Expenses

Well, it looks like we have not had any leaking toilets or taps during the first three quarters of 2014. Our water consumption has stayed the same. (We don’t water lawns or gardens in the summer, by the way. Planting perennials that are suited to the climate here has paid off; and I hate grass and prefer it to go dormant so I don’t have to mow it as often.)

We won’t know if we “sprung a leak” since December, though, until the next quarterly bill arrives. (It’s too cold to try to read the meter and I can’t be bothered. You can remind me I stupidly said that if I ever get one of those $1000 water bills….)

The drop in the price of gasoline is too recent to show a big impact on our annual gasoline spending. The price of gas was so high in the early part of the year, though, that we spent about the same as if we’d made a road trip to the Maritimes from Ontario this year, even though we didn’t. Good thing this was the “stay home” year!

We have GOT to do something, almost anything, about our internet bill!

I can continue to ridicule the government when they tell me how they have forced the insurance companies to reduce my home and auto insurance rates. (Although neither rate has gone up much either.)

How Does Our Investment Income Match Up to Our Expenses?

Mark at My Own Advisor was playing this game and reminded me to try a hand.

Simple Bills to Budget For

Ok, we’d have no trouble paying for

  • Water
  • Telephone
  • Internet
  • House insurance
  • Hydro
  • Natural gas and
  • Property taxes

From our investment income.

Car Expenses to Budget For

I separated out our auto-related expenses before starting the game. And I’m glad I did.

Wow! Who knew how fast those add up? (Ok, Mr. Money Mustache does and he talks about it ALL the time.)

The costs include

  • CAA
  • Driver’s licenses
  • License plates
  • Car insurance (why does it cost the same to ensure a ’98 Corolla as a ’12 Camry?)
  • Gasoline
  • Car repairs and maintenance
  • Saving for the next cars

Somewhere down that list is where we ran out of income before we ran out of expenses.

Harder to Estimate Expenses to Budget For

Which is too bad, because the expense list continued with:

  • Dental (no coverage in retirement)
  • Eye care (almost no coverage now or in retirement)
  • Drugs and health (does your doctor tell you the only way to prevent colon cancer is psyllium fibre at $20 a bottle even though you’ve never been constipated in your life?)
  • Food and housekeeping
  • Clothes and dry cleaning
  • Gifts, hobbies, entertainment
  • Charity
  • Pre-saving for home repair and maintenance costs

And probably a few dozen other costs I forgot to include. (I know our overall annual spending so I don’t usually bother to parse it out into categories.)

Yet if we ditched the cars (not literally) we’d be quite a ways down that list. So I guess if we plan to retire early, we may have to plan on reducing our stable of vehicles, or on increasing our retirement income. (There’s no trouble meeting all of these costs if we include CPP, OAS and a few other bits and pieces that we don’t get access to until 65+.)

Anyone want to buy a ’98 Corolla? It comes with a free (partial) can of Tremclad.

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Is your investment income enough to cover your expenses? Or do you expect to have to use the capital? Please share your strategy with a comment.