Is Your Retirement Plan Inflation-Proof? Don't Make Our Mistake

Indexed: 2026-05-22

[00:00:00]When we were doing our retirement financials, one thing that we constantly guesstimated was inflation.

[00:00:07]5%, 6%, 7%, we simulated on all kinds of numbers. Now that we are retired, we realize we were taught all wrong about inflation. So, let me help you not fall into that same trap.

[00:00:21]Hi everyone, welcome to our channel.

[00:00:24]One area that we keep getting questions around on our channel is inflation rate.

[00:00:29]What inflation did we use to calculate our corpus? What inflation we are using now etc. So in this video I'm going to try and demystify this inflation which can be too simplified by just an inflation number and the answer is a lot more nuance than just replying to a comment. So I'm going to explain how we went about inflation during our retirement planning, how it influenced our withdrawal rate and how it is impacting us now. And I'm going to do all that from this beautiful town called Rasto in Croatia. If you ever get an opportunity to travel to Croatia, make sure that you include Rasto as well as Pitwiss National Park. Beautiful once in a lifetime experience.

[00:01:19]Anyways, back to the topic. One thing we got wrong during our retirement planning financials is simplifying inflation to just one number. I guess that's the same for you that you've also used just a number when you do your simulations. But honestly, based on our experience now, we realize that inflation is just not one number. It is a portfolio of numbers.

[00:01:45]And as you can see on the screen um each of these categories have a different impact of inflation on our life and at a different point and also depending on where we stay and I'll come to that in a minute. So for example, education inflation especially a foreign university education the inflation is just explosive at least in the last 5 to 6 years or even 10 years it's more than doubled similarly healthcare premium healthcare can be very expensive on the other hand gadgets if you buy like for like home appliances etc TV they keep getting cheaper over a period of time and groceries is the typical inflation number that you will see that is generally cited out in all the inflation data and inflation metrics.

[00:02:40]So these are the typical portfolio of inflation numbers that impact and each of these numbers have a very different weightage on our calculation especially because these numbers are also impacted in the place where we are living in the lifestyle that we are leading. Generally it gets linked to the place that we are living. So for example um inflation in a tier 1 city is very different from an inflation in a tier 2 or a tier three city. So when we were in Dhamala we Sema and I we got our vitamin shots that you know injections that we were getting while we were in India to get the boost vitamin boost and we were shocked that we went to a doctor to get that injection and he just charged 20 rupees to just give us administer that injection. There is no way that we could have expected that just that small fee in Delhi or a Bengaluru or big cities just because the inflation is much higher just by the virtue of being cities. So if you are in a tier 1 city versus in a tier 2 city or even in fact if you are living in Europe or US or in Thailand and I'll come to Thailand our current inflation and how it is in influencing our retirement plan. you will see a very different number because of the place you live and the place you live also generally gets linked to the lifestyle that we have. So for example in the portfolio of numbers you must have seen that the car inflation is generally in a single digit when the prices go up or they flatten because of demand supply competition etc or even chip shortage that happened during the co years. But in reality, what happens is that every 5 years, you're not buying that same car and upgrading, but you're upgrading to a bigger model or a better model. So that's where the silent lifestyle inflation creeps in. And that also interestingly creeps into groceries because if you're buying groceries from a small little vegetable shop, probably the prices would be different versus you going to a premium organic supermarket store in Delhi, Bangaluru, Mumbai, any other city. So that inflation also hits differently.

[00:04:50]So what does this mean and what did it mean for us? Well, what we did is that we calculated our weighted inflation number based on these different categories. And how we did that was that we had and we still do capture all our expenses data month. So we could clearly see for the last four five years how that inflation is impacting us and how that weighted number is coming out. So for example we don't have children so we did not need to worry about the explosive growth in the children's education fee. uh while we were working we were fully covered with uh our corporate health insurance that made sure that we were not really also spending or getting uh bitten because of the healthcare inflation. We were also not a bitten by the lifestyle trap. So we were not upgrading our cars or watches etc. So that also kept our total inflation at bay. So surprisingly when we analyze that data we realize that our inflation number is coming to around 4%.

[00:05:56]Versus the market inflation which is much higher. So that's how you calculate your weighted inflation and based on that you also project your inflation for future. So even though we used 4% of our weighted inflation for past but for a retirement we had a much higher inflation that we calculated and the reason being is that our aspiration during retirement was traveling and that's what brings us to Croatia right now and we were planning to in our budget have much more luxury travel so we had to keep that in mind and also because we knew that as soon as we retire our healthcare would all on us rather than a corporate healthcare insurance. So we had to also bake into that. But from the date of our starting this journey towards fire or financial independence to the date when we were planning to retire early, we calculated a weighted inflation of 4% because health care was not an issue during that time. Travel was comparatively less etc. But after that we used a different number. So that is how I would suggest you should calculate your inflation number. So do a weightage see how much percentage of your every hundred rupee dollar euro that you're spending on a monthly basis how much is it going towards groceries how much it is going towards uh electronics purchase children um your lifestyle upkeep entertainment etc and you'll get a fairly rough idea that how it is impacting but don't fall for the g uh the trap that you just copy paste a number because that seems to be an average inflation it could be that you still end up within that average inflation benchmark but at least you'll have a much more accurate data once you do that and that is the number that you come up will also impact your withdrawal rate. So generally because your withdrawal rate is postretirement and generally postretirement you have to calculate are you still going to support your children healthcare would still be an important part during that time. So that will push up your inflation number and that is the reason that we keep strongly suggesting do not have uh more than 4% of a withdrawal rate because this entire 4% rule was coined by Bill Mangan and done based on the American markets and the American inflation.

[00:08:18]While if you're planning to retire in India, you have to keep Indian inflation in mind and on top of that the Indian rupee depreciation because that also hits into inflation whenever you're planning to travel abroad. So that even if for example the foreign travel the prices remain the same. You are paying 10% extra just because of the fact that your your rupee gets depreciation depreciated by that. So you have to bake that also. So with that in mind, I would strongly recommend to have your withdrawal rate planning for future in the range of 3% like we did just to be much more safer towards the future inflation and especially keep in mind that inflation uh hits harder on premium activities. So be it going for a movie at PVR and having those recliner seat, be it traveling to international destinations or staying in a hotel and sadly and shockingly one of the things that we are realizing that the in hotels in India have at least the premium hotels in India have become outrageously expensive and we get quite surprised that when we talk to our relatives and friend that for them that's become the normalized price while in Croatia while we are visiting we are paying much less than probably we would have paid in aeros city in Delhi the hotel prices so keep that in mind while you're calculating your inflation number so that's about how we calculated and how we calcul used that weighted inflation to calculate our future corpus future expenses now coming to the retirement part that how is it impacting us during the retirement years well firstly yes the healthcare inflation is definitely much more hitting us now because uh during the working years the corporate health insurance helped us but now as we are aging we are taking a lot more supplements uh we are um you know taking a lot more executive checkups done etc and we are seeing that the inflation of those supplements these executive checkups are increasing year on year and this is out of pocket exper uh expenses touchwood so far we did not need any inpatient treatment we've got good insurance covers both in Thailand and India and that's protecting us or will hopefully protect us from those uh inpatient uh expenses. When it comes to travel, we use time to our advantage and that is that we are traveling we can we can afford from a time perspective during the non- peak season. So right now in Croatia it's the shoulder season.

[00:10:57]for less tourists. So we get a better deal from hotels etc to stay which are the bigger expenses and also what we are doing is that we scope our travel to the budget that we've set. So we even we are searching a hotel on booking.com or Airbnb um a house we only put that filter of our budget. So whatever is available in that budget we try and stay in that rather than see that how is inflation impacting us by having that open search. So that is also helping us from the air ticket perspective. This is the third year of our travel that we are using the round the world air ticket and so far in the last 3 years we've realized that touchwood and fortunately those tickets have not had the inflation number inflation hit them compared to the regular travel that you are paying so that around the world one ticket itself takes care of all our travel for the year including Delhi Thailand visiting family visiting friends coming to Croatia etc. more on that around the world you can watch a detailed video where we've you know elaborated that the other thing that is helping us is that in Thailand the inflation at least in the lifestyle that we are leading is not the same as it is in India so so far if we are looking at the last 3 years data we did simulate our expenses and project our expenses with 5 to 6% inflation number uh but our actual data is around 4% and that is also The reason that when we say that we have not been able to spend the budget that we allocated is because we've put a higher inflation target and we've increase that year-on-year expenses accordingly but in reality the expenses are within that you know we've been managed within that 4% range. So that's how we are going about during retirement. would love to hear if you've retired that how you are calculating your inflation during retirement and how the others can also value from your inputs. So I hope this video gives you an insight into how you can calculate a weighted inflation number based on that portfolio of inflation numbers. How you use it to calculate your future corpus of the date when you're going to retire potentially. how to use it towards influencing your withdrawal rate preferably within the 3 to 4% range and how we are using inflation during our retirement years. So, hope this video was useful to give you some new food for thought. Till the next video, till the next topic, until the next location probably within Croatia. Talk to you.

[00:13:38]Bye.