FIRE and inflation
I watched a video recently that made a point I haven’t been able to shake.
A lot of the math assumes inflation is basically 2%. Maybe 3% if you’re being “conservative.”
But since 2020, official CPI is up around 29%. A 2% assumption over the same period would’ve been more like 13–14%.
That’s a huge gap.
And yeah, index funds have gone up too. I’m not saying “index funds are dead” or anything dramatic like that. I’m still mostly invested that way. But your portfolio can be up, and yet groceries, insurance, rent, utilities, repairs, travel, healthcare, etc. have all moved so much that your because of actual life you don't feel 29% richer - you feel poorer if anything.
And then there’s the other part, that the inflation number we're given feels off from reality. The basket changes. Substitutions are allowed. Quality adjustments get made. “Core inflation” excludes food and energy, which is hilarious because I personally have not figured out how to live without either. Housing is also weird because CPI doesn’t just use home prices like a normal person would think. It uses things like owner’s equivalent rent.
But it’s also hard not to notice that a lower official inflation number is very convenient for governments, central banks, benefit adjustments, pensions, wages, and basically every institution that would rather not admit money is losing value faster than advertised.
Curious how others are dealing with this.
- Have you raised your FIRE number?
- Are you using 3%, 4%, 5% inflation assumptions now?
- Are you adding things like TIPS, I Bonds, real estate, commodities, international exposure, or just staying the course?
- And mentally, how are you handling the fact that the goalposts feel a lot less fixed than they did five or ten years ago?