Inflation adjusted or Not

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Neil
Posts: 2
Joined: Sat Aug 01, 2015 7:03 pm

Inflation adjusted or Not

Post by Neil »

Great tools, I wish I found this years ago.

Have a newbie question though. I have selected Other Expenses for inputting the Retirement Spending and have selected Inflation under the COLA. On the Summary View inflation is set at 3.5% with a SD of 0.

Here's where i'm confused, looking at the Summary tab, the Median Portfolio Value seems to change every year, but the Planned Expenses to not. Elsewhere in the forum I've read that the expenses are in Current Dollars (2015) and do not change for ease of display. But if that's the case, shouldn't the Withdrawal Rate for, say, 20 years from now, be reflective of the then Expenses? For example, the expenses in the table are shown as 100,000 (unadjusted) and the portfolio is $989,500 (presumable in dollars of 2035). The Withdrawal rate says 9.2%. But shouldn't it be higher? Expenses are really about $100,000 times an inflation rate over twenty years, approximately $200,000 in 2035, and then the withdrawal rate would be something closer to 20% (200000/989000)?!

What am I missing.

N.

jimr
Posts: 602
Joined: Thu Feb 28, 2008 6:48 pm

Re: Inflation adjusted or Not

Post by jimr »

Neil wrote: For example, the expenses in the table are shown as 100,000 (unadjusted) and the portfolio is $989,500 (presumable in dollars of 2035).
The portfolio value is also shown in 2015 dollars. If you set the portfolio return/std dev to 0 as a test, it might be easier to see how it works. Another thing to try for a test is to add an 'other expenses' with no cola. In that case, since the expense's value in 2015 dollars is declining because of the lack of cola, the amount shown for expense in the detailed output table will also be declining as the years go by.

Jim

Neil
Posts: 2
Joined: Sat Aug 01, 2015 7:03 pm

Re: Inflation adjusted or Not

Post by Neil »

That certainly makes a lot of sense. Thanks, I'm off to experiment!

N.

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