There might be something wrong with me. I was given the green light to spend more money in my early retirement.  So I tried to do it but failed. Lifestyle inflation is a huge risk to avoid when saving for retirement and financial independence. It robs us of potential future investment income when money is spent unnecessarily for wants beyond needs. But once we are happily rat race free and living off of our portfolio, is early retirement lifestyle inflation ever justified? 

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Asking The Question: Is Deliberate Early Retirement Lifestyle Inflation Ever Justified?

The reason that I ask this question is due to events that began over a year ago. I was meeting with my CFP and he asks as he always does, what have you been up to and how are things going with cash flow? 

For years I’ve got the impression that he’s perplexed about our budget. We live in an above average cost region in a desirable and fast growing town on what most here would consider a small amount of money. He knows exactly what income I’m getting and living off of in early retirement. I explained everything was going well and that is when he dropped the unexpected: 

According to their analysis, I could increase my cash flow. They recommend upping the monthly distribution amount that I receive from my IRA. 

You’re suggesting that I take more money out of my portfolio to spend? How did this happen?

He presented graphs and analysis based on my portfolio, future Social Security income, tax considerations, and their Monte Carlo calculated results to support increasing my distribution amount. 

I never thought this would happen. I retired early at age 51 with less than a million dollar portfolio. Even so, did I still save too much? Over 10 years into this sweet early retirement ride I sometimes wonder if I could have retired much younger. 

On the other side of my ponder was the effect of my static withdrawal rate for the first 9 years of early retirement. It was in the upper 4% range, nearer 5%. My withdrawal amount never fluctuated with inflation. Inflation that was primarily associated with health insurance. This must have played into the current positive cash flow situation and supports recent talk that 4% withdrawal rate is too low.

This also shows the enormous positive long-term impact of a few short but enjoyable retirement gigs. I lived off of my portfolio 72t distributions and pumped any gig earnings back into my net worth. Simply put, I paid off my $100K mortgage and added a bit to the portfolio by taking advantage of 401K opportunities. Those unexpected and unplanned moves while simply living on budget allowed my eliminated mortgage payment to counter health insurance budget increases and added an offset to some of the portfolio withdrawals for a couple of years. 

At first I hesitated and even said no thanks, but then….

I started thinking that maybe he was right and we should cut loose a little more. YOLO, that great seducer came to mind while sitting there in his office and I agreed to the recommendation. With that my monthly distribution increased $800. A monthly raise anyone would love to get. I knew it could go to good use. It was certain that our health insurance premium would jump at the end of the year as it always does and I had some new expensive medication I had to now take. There are other things that we ditched long ago in our smart frugal budget and lifestyle that we can maybe look at again. 

I began to think that because this is a deliberate increase in spending based on financial data and complex calculations, it probably shouldn’t be considered early retirement lifestyle inflation. It’s easy to rationalize. A little too easy. However, a year later things have played out differently. 

There was a problem, there wasn’t anything I wanted to spend more money on.

I had created a sustainable and enjoyable smart frugal lifestyle. It seems when given the opportunity to open up spending there wasn’t anything wanted or needed above what our budget already allowed for. When it came down to it, there was nothing I felt deprived of having. We simply do everything that we want to do. We buy what we want and need to buy. 

Here’s what I think happens. FIRE minded folks think differently than most people. The desire to wastfully own wants and expand needs significantly decreases over time when we are FIRE aware. In my case it wasn’t reversible even with there being more money available to spend. Good financial and simpler living habits die hard too.  

What ended up happening with the increased income.

The extra monthly income easily covers my added medical expenses and the rest gets diverted to my bank savings and CDs. I’ve worked it into my increased retirement cash holdings strategy. Aside from that, it’s nice knowing that if I did have an unplanned expense or if something special came up that I have the cash to handle it. 

I did splurge and bought a long-time bucket list auto several months ago. Something that caused questions about my financial standing among friends and acquaintances. That social pop blew over quickly and I am really happy that I scratched that itch.

The extra cash has allowed us to assist our children during the pandemic as their income has decreased, causing them budget challenges. 

If the portfolio takes a dump it’s comforting to know I can use saved cash and easily reduce portfolio distributions.

The Takeaway

As hard as it is to initially set and keep to a budget, when done correctly it produces positive lifelong personal finance habits.

Creating a sustainable and enjoyable retirement lifestyle is the reward, not getting more money. Which is a reason why my retirement gigs ended as they did. Everyone is different, but we have landed in a lifestyle without feeling deprived and all our needs, even wants are met. Increasing our spending would feel forced and unnecessary. 

Even when retiring early without a million dollar portfolio, having a portfolio aligned budget and lifestyle can result in still having long-term financial security. 

Early spending discipline can result in better than expected long-term portfolio performance. That and simply keeping our eyes open to rewarding opportunities of interest and passions. FIRE naysayers are wrong, retiring early to a life of austerity is not a given. We can use our youth, energy, and health to our advantage in early retirement. 

The fear that the retirement calculator results could be wrong was unfounded. I constantly ran my numbers before ditching the rat race and they ended up right. At least to this point over a decade into this early retirement adventure. I am going to feel good about trusting the numbers my CFP is seeing now too.

Is early retirement lifestyle inflation ever justified? It certainly can be allowed from a numbers perspective if the portfolio has performed well enough and we age beyond any long-term tipping point. The issue is whether we are happy with our lifestyle and whether spending more will make any difference, either good or bad. With all the hellish news we hear today, hopefully this personal revelation brings a little thought provoking sunshine to anyone’s doubts when considering their retirement. 

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