Current dollar portfolio and current dollar expenses

A retirement planning tool is only as good as its assumptions and inputs. Share your thoughts or ask questions about the internals of the simulation, built in planner assumptions, or planner inputs.
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whopwood
Posts: 1
Joined: Tue Feb 02, 2016 12:47 pm

Current dollar portfolio and current dollar expenses

Post by whopwood » Tue Feb 02, 2016 1:17 pm

Hello Jim,

A very nice piece of software! Thanks for the great work.

I see that in all years the the portfolio value is discounted to current dollars using the assumed inflation rate. And I see that future expenses are also expressed in (unchanging) current dollars. I understand that this expressses portfolio values and expenses in current dollars.

My question is why not express both the portfolio value and expenses in nominal dollars, with expenses rising with inflation? Wouldn't this make it easier for users to see the impact of inflation? This could at least be a checkbox option. It might make it easier for many to understand the analysis.

With inflation adjusted tax brackets, it would seem that both approaches (real versus nominal) would produce the same ending portfolio in real terms.

Bill

jimr
Posts: 518
Joined: Thu Feb 28, 2008 6:48 pm

Re: Current dollar portfolio and current dollar expenses

Post by jimr » Tue Feb 02, 2016 3:27 pm

Bill,

Thanks for the comment. I agree that having an option to show either nominal and real values might have been a better approach.

Personally, I like to think in real dollars. For me it's tough to understand the true value of a super high nominal dollar amount (like say a portfolio balance) that includes 10-20 years worth of inflation. It doesn't take many years for the huge values to lose all meaning.

OTOH, I notice that many of the other MC calculators out there give you the option of toggling between real or nominal dollars. If I had it to do again, I might choose that approach. Unfortunately, it'd be a pretty big rework to incorporate something like that into the planner at this stage.

Jim

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