I was taking my usual break from gaming and doing my 10,000 steps with some stair climbing thrown in when I decided to give some thought to how inflation is going to affect how much passive income I need.
To be honest, it isn’t something I must really think about because, off the top of my head, I think I have sufficient buffer but once I think about something, I must have closure.
Inflation is preferred to deflation which is why central banks in USA, Europe and Japan were trying so hard for so long to get inflation going.
Well, be careful what we wish for.
A cute little thing can become a monster just like that carnivorous plant in Little Shop of Horrors.
Audrey, if I remember correctly.
Anyway, now that inflation has become pretty ugly, we hear people complaining all the time.
If I had remained a wage slave, I would be crying blue murder, for sure.
What is a wage slave?
We are lucky that in Singapore, higher inflation isn’t as horrible as in some other countries.
Even the USA is experiencing inflation of close to 10% which is pretty bad.
So, roughly, if my portfolio is able to generate 10% more in passive income, I should do OK.
Last year, my passive income was $171,854.30.
So, 10% more means that this year, I should need $189,039.73!
Alamak, very stressful like that.
Not like this lah.
Anyway, regular readers might remember that back in late 2019, I had a pretty lengthy blog in which I revealed how much passive income I needed.
It was $120,000 a year.
$40,000 for my own expenses.
$40,000 for parental support.
$40,000 for voluntary contribution to my CPF account.
It has been almost 3 years since that blog.
So, seems like it is overdue for an update.
Yes, AK is lazy.
Tell me something I don’t know.
I will start with the easiest one which is CPF.
Inflation doesn’t affect the amount I must set aside to contribute to my CPF apart from the annual increase in the BHS.
So, I think increasing the amount from $40,000 to $41,000 is probably reasonable.
As for my own expenses, I think I will be generous and I am increasing the amount from $40,000 to $48,000 or a 20% increase.
This is more than enough to offset any inflationary pressure for this year and the next, I hope.
The same will go for parental support.
This means that I will have to set aside a total of $48,000 + $48,000 + $41,000 = $137,000 per year from my passive income this year and probably the next.
1H 2022 has delivered a total of $104,678.42 in passive income.
Unless something really terrible happens, 2H 2022 should not have a hard time bringing home the bacon.
Being a retiree, I don’t have a kind hearted boss to give me a salary increment to help with inflation.
Have to myself help myself.
Fortunately, consistently investing for income means I am able to do this.
Of course, putting aside more passive income means that I will have less money to invest with.
Still, I am not complaining because early retirement is my choice and I am enjoying it very much.
Hard to believe but it has been 6 years.
I know what some will say about how we must look at real income and not nominal income.
So, if inflation goes up by 10%, our nominal income must increase by 10% too or else we are losing purchasing power.
Like I said earlier, it is so stressful to think like this but it is unfortunately true.
Those who are marginally financially free could fall off the cliff and might have to go back to work.
I am fortunate that 1H 2022 passive income increased 28% year on year which means that my purchasing power has not been compromised.
Hopefully, the inflationary storm does not worsen from here but even so, if I remain prudent financially, I shouldn’t have to worry (too much.)
In my retirement, without an earned income, if I am able to meet all my financial obligations with my passive income and still be able grow my wealth even by just a little every year, I am happy enough.
1. Our CPF money is not our money…
2. Lost $300K in cryptocurrencies…
1. Largest investments updated.
2. CPF savings in 2022.