Are retirement expense amounts adjusted for inflation?

[frp user]

Playing around with your calculator-hope it is as accurate as simple. Thanks for posting it.

When data is entered, there is a input for Inflation. In the results tab, there is a column labeled “Planned Expenses”. The Planned Expenses column in results shows a continuous fixed withdrawal. Is that adjusted for inflation?

Thanks…

[admin]

Hello,

The amount you enter for "Annual Retirement Expenses" on the main input panel is adjusted for inflation. The reason that the results tab shows a fixed amount for each year is because all the values displayed in that table are in present value (inflation adjusted) dollars.

As far as accuracy goes, it's only as good as the inputs

In particular, choose the rate of return and standard deviation (or investing style) carefully. Very small changes in these inputs can result in very large changes in the end result.

Regards,

Jim

[frp user]

Jim,

Thanks for the note. I am not terribly familiar with standard deviation-know I should be, but frankly am not. I am a fairly conservative investor and in fairly good shape for retirement. If I choose a rate of return of about 6.0, what standard deviations would be appropriate? I suspect that is not a terrible fair question, just trying to get a reasonably accurate result.

How do you handle investment expenses and inflation in rate of return?

[admin]

I am not terribly familiar with standard deviation-know I should be, but frankly am not. I am a fairly conservative investor and in fairly good shape for retirement. If I choose a rate of return of about 6.0, what standard deviations would be appropriate? I suspect that is not a terrible fair question, just trying to get a reasonably accurate result.

The values in the "canned" investing styles for return and std dev should be pretty realistic. So for 6%, you could set the investing style to risk averse and come pretty close.

How do you handle investment expenses and inflation in rate of return?

Inside the simulation, I assume that the return is net of expenses. In other words, I don't explicitly take expenses into account. On the other hand, the canned return values I provide for the various investing styles use reasonably conservative so they should be achievable as long as expenses aren't out of line.

For inflation handling, it goes like this... for each year of the simulation, the portfolio is increased by that year's rate of return, then reduced by the inflation rate.

Hope that clears things up...

Jim