Does one’s personal inflation rate matter vs CPI when calculating SAFEMAX?

I was curious whether one’s personal inflation matters more than CPI for the inflation bucket to lookup SAFEMAX. As an example, our personal inflation rate based on tracked spending has been close to 1% total over the last 5 years. This is less than the roughly 4.5%/year from CPI over the same interval.

In a situation like this, would you suggest using the 0-2.5% bucket or the 2.5%-5% bucket?

Asked in another way, is the inflation value you should use for looking up SAFEMAX always CPI inflation or does actual spending inflation matter more, assuming you have tracked this in a meaningful way such that it is available?

-A

Hi Alden,

Thanks for your note and your interest in my research.

I found your email very interesting. Most folks don’t have as secure a handle on their personal inflation rate as you do. Very impressive. Given your confidence in your numbers, I see no reason why you should not use your personal inflation rate to determine your SAFEMAX. And yes, by all means, choose the “low inflation” regime.

Using a personal inflation rate is superior to the CPI approach. It should permit a higher SAFEMAX.

Yours for a richer retirement,

Bill Bengen