Our Deflation-Driven Retirement (Fixed Expenses)

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Wednesday, March 27, 2013

Part 1 - Our Deflation-Driven Retirement (Fixed Expenses)

First a basic definition of what I mean by deflation: Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the real value of money over time; conversely, deflation increases the real value of money. This allows one to buy more goods with the same amount of money over time.

Yep, that's precisely what's been incurring in our household since I retired in 2011; we've spent less each consecutive year, even as we feel like we are receiving more in return. But not by accident - far from it. With the luxury of time in retirement to dig in and analyze our budget, diligently track our spend, and consistently look for more efficient ways to achieve the same end result, our overall annual spend has dropped each year since.

This is one of the significant shifts in perspective I experienced in early retirement - there is a finite amount of resources to spend in any given year if we wish to remain fully funded up to, and ideal beyond, our projected life spans. Once I realized that a 3% or less withdrawal rate really means a 3% or less withdrawal rate - period, no exceptions - I started looking for ways to drive down our fixed expenses, beef up our discretionary expenses, and look for creative ways to get more bang for our buck in both categories.

I'll start by focusing on Fixed Expenses. 

I initially identified the following budget line items to tackle: cell phone, groceries, internet, cable, landline phone, electricity, natural gas, water/trash, vehicle insurance and home insurance. Here is what transpired over time as a result:

• Cell phones - Analyzed our bill, found some unnecessary line items such as caller ID and geographic proximity of caller, and had them removed. Discovered 411 calls were now $1.99 and stopped making them. Discovered text messaging ran .20 per message and had it turned off. Discovered there was an employer discount that could be applied, and had it added. Elected to stay with Basic Phones rather than Smart Phones until we could make the switch without increasing our rates. After giving this more thought, have decided that with our portable GPS unit and Kindle Fires, we have all the on-the-go technology access we need, and upgrading to Smart Phones, even at no increase in annual service cost, holds no appeal at this time. We do, however, plan to leave Verizon in August, when our contract is up, and move to a non-contract provider instead, likely Walmart's StraightTalk, which will decrease our current annual cell phone costs even more.
• 2011: $1,200 
• 2012: $1,000
• 2013: $  750 (Projected once we transition to StraightTalk in August)

• Groceries - Initiated meal planning. Began planning our meals around weekly sale items. Looked for sales in advance of holiday events and anticipated entertaining. Stopped purchasing most convenience foods and began preparing meals and snacks from scratch. Utilized leftovers for subsequent lunches, or incorporated them into subsequent dinners. The net result of all of this with regard to food quantity now on hand? Some weeks I end up with so much food as a result of cooking almost everything from scratch, I have to literally put off my grocery shopping until we "catch up."
• 2011: $6,000
• 2012: $4,700 (we budget $5,200, but I ended up with over $500 left at the end of the year)
• 2013: $4,700*

• Internet/Cable/Landline - Initially bundled all three in 2011, resulting in a $600 a year savings. Went further in 2012 and dropped both cable and landline phone service. Purchased Roku units instead, to stream internet content through our TV's. Pressed hard and received a $29.99 monthly offer for continuing with internet, which I accepted.
• 2011: $1,600
• 2012: $   360
• 2013: $   407 (Our provider began charging for our internet modem for the first time ever, likely because they were losing so many cable service customers)

• Electricity: Began opening windows in the evening instead of simply cranking up the A/C. Moved the A/C setting up little by little, from 68 to our current 78 during the day/77 at night settings, which now feels "normal" and quite comfortable. Unplugged appliances like our toaster, can opener and other seldom used, easy to reach items, after usage. Connected our TV's to power strips, which we turn to off when they are not in use.
• 2011: $1,600
• 2012: $1,000
• 2013: $1,000*

• Natural gas - Already pretty low here in temperate Southern California, but we still managed to shave some costs by limiting our usage during cool winter mornings to one hour in the morning, and about the same in the evening. (We upgraded to double pane windows some time ago, and our home retains it's temperature pretty consistently as a result.)
• 2011: $265
• 2012: $250
• 2013: $250*

• Water/Trash - We have no real control over our trash expenses, but we have total control over our water usage expenses. Primarily we began turning off our sprinklers each time rain was projected, and then left them off until a week after the last rain. In the summer, we cut back on the number of days we watered, and began hand watering areas that appeared to need more.
• 2011: $1,200
• 2012: $   900
• 2013: $   900*

• Auto/Motorcycle/Trailer Insurance - Discovered redundant coverages for Roadside Assistance over the three policies and had them removed. Analyzed cost of maintaining motorcycles based on our limited usage, and decided to sell them. 
• 2011: $1,600
• 2012: $1,200
• 2013: $1,200*

• Homeowners Insurance: Increased deductibles from $1,000 to $2,000. Analyzed renewal and discovered we were being charged for liability on a rental property we no longer owned. Had the charge removed, and also a credit applied for the entire time period we were charged incorrectly.
• 2011: $911
• 2012: $681
• 2013: $681

    * No change anticipated based on usage and spend to date.

The net result of the above deflationary moves, i.e., finding cheaper ways to achieve the same end result, and which resulted in no change whatsoever in our quality of life, yielded almost $4,500 dollars in annual savings. And I include the sale of our motorcycles in that quality of life assessment. Because we rarely rode them anymore, they had become more a source of stress than pleasure every time we passed by them in our garage. Instead, we rolled the proceeds that resulted from selling them, plus our prior Fleetwood canvas travel trailer, into the purchase of our new TrailManor hardsided travel trailer. Which we enjoy tremendously, and utilize more than both our old travel trailer and motorcycles combined.

I'm confident there is more waste still waiting to be tackled, but assuming no rate increase, I'm satisfied enough with the results to leave things as they are for now. Should a rate increase be forthcoming in any of the above fixed expense categories, I'll simply start the analysis process again in order to bring us back to financial equilibrium. 

I should add that while we have an inflationary guard built into our plan, the longer we go without applying it, the better our projected end of life portfolio looks. And at this point in our early retirement, that provides me with tremendous peace of mind.

Up next: Tackling our Discretionary Expenses in order to effect deflation.