We live in interesting times – prices are up, the market is down, life’s necessities are often not available at any price, and even gasoline is at “all-time highs” (if you ignore inflation)…

So it is no wonder that people are concerned. I’ve been asked the question numerous times, “Is early retirement doomed? Is this the start of another worst retirement ever?

Let’s explore.

Inflation Pontification

Prices are up. As reported by the BLS, inflation over the past 12 months is a whopping 8.3%. That is no joke.

Even numbers are up. Check out these poll results as a perfect example. (This… is a joke.)

As seen on Twitter (sorry, can’t find source.)

But clearly this is no laughing matter. Households are feeling the squeeze, where income isn’t keeping up with cost of living.

And for the privileged few who are able to live off their investment portfolio, it is a time of concern. It’s even in the mainstream press, as exemplified by this USA Today headline.

Let’s investigate this topic for this latter group.

The 4% Rule (and inflation)

The 4% Rule is a helpful guide. Simply stated, if you spend 4% of your starting portfolio value each year (inflation adjusted) your portfolio should last 30 years at least (96.x% “guaranteed.”)

The 4% Rule is built from the worst economic time frames in history… else it would be the 5% rule. It survived the crash of 1929, WW1, WW2, and the big crashes of 2000 and 2008 (probably.)

It only fails (that irritating 4% of the time) when the shit really hits the fan, when truly bad things happen early on, such as… sustained high inflation.

Which…. sounds bad.

Is that the situation we are in today? Well… according to a bunch of economists at Fannie Mae and market expectations:

inflation is expected to remain elevated, averaging 5.5 percent in Q4 2022. The Fed’s preferred inflation measure, the core PCE deflator, is forecast to be 4.3 percent by the end of the year, before slowing to 2.8 percent by the end of 2023 as economic activity also slows.

Of course nobody knows for sure. The CBO and I were wrong less than a year ago. But… here is what I think.

Deep thoughts

By and large, the inflation we are experiencing at present is due to supply shock. The entire world economy shut down due to Covid-19 and it is trying to turn on again much like an ancient fluorescent tube.

It will turn on eventually, but it is going to flicker for awhile. This is especially noticeable in anything that uses semiconductors (aka everything) such as cars.

Add in a bit of war in Ukraine (crude oil and wheat), another hard lock down in China (every product made), backlogged ports, etc… and the problem persists / spreads / cascades. Every time it looks like one sector is getting back to normal another stumbles.

Why is this important? Because it is very different from the inflation drivers of the 70s that caused prices to triple from 1965 to 1982. This is something that can be solved with the right incentives – the best answer to high prices is high prices. The profit motive will do the rest – there is a lot of $$$ to be made getting supply chains running smoothly.

Which is why I find projections for sub-3% inflation by the end of 2023 to be credible.

Actions Taken and Considered

All that said… several steps we have taken in life do increase our inflation resiliency.

First and foremost, we continue to spend less than 4%. (A 3% withdrawal rate has a 100% historical success rate vs 4%’s 96%.)

Second, we fixed our housing costs. By buying a house we have set a significant percentage of our total spending to zero.

Third, we have made efforts to reduce exposure to oil. We ride an e-bike daily and use an electric car for longer trips. Filling the tank on our car costs $0 at the public charging stations or about $6 at home, whereas a gallon of gasoline is $6+ in our part of California.

We also added solar panels to our rooftop. For the past ~4 months we have generated more power than we have used and have been paid full retail prices for that surplus (which will probably be used for our AC in July and August.)

None of these 3 actions were taken specifically to address inflation but fixed costs and low cash-flow has been a nice secondary effect.

Directly because of inflation I also chose to take on debt. Holding debt at a rate much lower than inflation is free money. As such, I added a mortgage to the house (2.75% 30-year fixed) and got a loan for the EV purchase (2.74% 6?-year fixed.) I’ll pay those off as slowly as possible. I’m also exploring some 0% credit card offers and have a HELOC application in process (4% rate at present.)

Because high inflation is terrible for bonds and cash we have nearly eliminated these from our portfolio. As interest rates rise bond prices will fall and the purchasing power of cash will just wither away. By contrast, companies that can raise their prices to offset increased supply and labor costs will continue to flourish (e.g. the SP500.)

Lastly… we do make a little bit of income off of this website and I enjoy thinking and writing about all of this stuff. But I wouldn’t be opposed to taking on some other projects for additional income if things got really bad. Additional work is usually an option for people with in-demand skills. It might even be fun to learn to drive a forklift and Costco is hiring.


Prices are up. Price expectations are up. The market is down. That is a bummer for people living off a portfolio.

It probably isn’t as bad as 1965 – the profit motive should help supply chains get back to normal asap – but it doesn’t hurt to pay extra attention. I’m not concerned though.

As early retirees we took some steps that increased our inflation resiliency, such as fixing housing and energy costs, taking on debt at rates lower than inflation, and reducing exposure to bonds and cash. Earning additional income is also a good option.

Where do you think inflation is going? Are there any other good tools for inflation resiliency?