Variable expenses and inflation

Post questions about how to use the planner, user inputs, how the planner works, and comments and suggestions.
Post Reply
Davj
Posts: 1
Joined: Thu Oct 24, 2013 11:07 am

Variable expenses and inflation

Post by Davj »

Can you please confirm how the planner adjusts variable expenses for inflation? I want to have my spending rate set for say 10 years then I want to change the spending rate for the next 10 years. I set the annual spending to 0 in the main inputs and entered "Expenses(no cola)" lines for the periods in the additional inputs. When I run the simulation the detailed view shows that my planned expenses are decreasing each year. That seems counter intuitive. Yet when I specify a set spending rate in the main inputs it shows a steady rate of spending. Can you explain whats happening and confirm that I'm entering the inputs correctly to get inflation adjusted spend rates for different time frames?

Thank you very much. This is great tool
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Variable expenses and inflation

Post by jimr »

Thanks for the question.

The 'no cola' spending cashflows don't include cost of living (inflation) adjustments and that's why the amount shown in the yearly detailed output table decreases each year.

All of the dollar values displayed in the planner's output are shown in today's value dollars. So if a spending amount isn't adjusted for inflation, it will be shown as decreasing by the inflation rate each year, to reflect the decrease in purchasing power experienced each year. You can see this by increasing the inflation rate and you'll notice that any no cola cashflow amounts decrease at a greater rate as the inflation rate increases.

The income and expenses on the main page are assumed to include a 'cola' so they automatically are adjusted to keep up with inflation and that's why they appear as unchanging when shown in the detailed (yearly) output.

To get inflation adjusted spending rates, just use any of the other expense cashflow types without the words 'no cola' in the cash flow name.

Jim
Post Reply

Who is online

Users browsing this forum: No registered users and 34 guests