Inflation Adjusted Expenses

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tjski
Posts: 2
Joined: Sun May 06, 2018 9:49 am

Inflation Adjusted Expenses

Post by tjski »

I download this software about a year ago and have been using it on and off to plan my retirement. I just noticed that when I looked at the details, the expenses that I want to model are not increasing each year by the inflation factor that I was expecting. What am I doing wrong? I have attached a few screen shots of a fictitious scenario that I think points out my confusion and provides details of the settings used.
Case1d.jpg
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Inflation Adjusted Expenses

Post by jimr »

The amounts shown in the detail view tab are present value inflation adjusted dollars. That means that an amount that exactly keeps up with inflation from year to year will stay constant from year to year. An amount that doesn't keep up with inflation will decrease from year to year.

To test this out you can zero out the 'retirement income' cash flow on the main input window and instead use an additional inputs entry. First, try it with an income cash flow with a cola type set to 'track inflation'. Run the planner and notice that the income column in the detailed view stays constant. Next, edit the cash flow in additional inputs to set its COLA Type to 'No COLA'. Then run the planner and notice that the income amount in the detail view decreases each year by the inflation rate.
tjski
Posts: 2
Joined: Sun May 06, 2018 9:49 am

Re: Inflation Adjusted Expenses

Post by tjski »

I am not sure we are talking about the same thing. I am trying to understand how the software addresses spending expenses during retirement. In the "Documentation - Spending Policies" section of the support web page, it states " The annual spending amount is automatically increased each year by the inflation rate so that the retiree’s spending level keeps up with inflation." My interpretation of this statement would lead me to believe the "Planned Expenses" column should show an increased amount each year going forward if I elect either a COLA or an inflation factor. I do not see this happening if I enter a value for Annual Retirement Spending in the main input window or if I enter a value in the Additional Input entry page under cash flow type of 'other expenses' with track inflation elected.
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Inflation Adjusted Expenses

Post by jimr »

I think I get your question, but let me try again with the answer.

The key to understanding what's going on is to try the experiment I described above with the COLA Type.

The amount staying the same from row to row in the detailed view table is in fact showing that the amount is exactly keeping up with inflation. Again, this is because all the amounts in that view are shown in present value dollars (eg discounted back to today).
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