Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CPI vs chained, not a big deal
Old 12-16-2017, 09:40 AM   #1
Recycles dryer sheets
 
Join Date: May 2011
Location: Austin
Posts: 263
CPI vs chained, not a big deal

As the new tax brackets will be adjusted with chained CPI, I was assuming it will have a huge impact on my future tax, and I should do aggressive tIRA to Roth conversion when possible.

I used CBO estimate that chained will be 0.25% lower, and I assume inflation will be at 3%. Currently I have around 25% of my investable in tax advantage account. I will spend down all my investable by 2065.

But my simulation shows very minimal difference between chained and CPI.
__________________

HillCountry is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-16-2017, 09:49 AM   #2
Thinks s/he gets paid by the post
Tadpole's Avatar
 
Join Date: Jul 2004
Posts: 1,210
Correct me if I am wrong but won't it be easier to lower the chained CPI in the assumptions than in the regular CPI? Are there concrete rules for the calculation?
__________________

Tadpole is offline   Reply With Quote
Old 12-16-2017, 10:22 AM   #3
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,383
It seems like if tax brackets go up with chained CPI, but income goes up with regular CPI, you are better off with chained CPI.

Chained CPI should go up slower.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 12-16-2017, 12:19 PM   #4
Thinks s/he gets paid by the post
Tadpole's Avatar
 
Join Date: Jul 2004
Posts: 1,210
Huh? Why wouldn't I prefer the bracket to move at the same rate as my income (or at a faster rate) to keep me in the lower bracket? (The top of my bracket remains higher than my current income.)
Tadpole is offline   Reply With Quote
Old 12-16-2017, 02:30 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Mar 2015
Posts: 1,206
Quote:
Originally Posted by Senator View Post
It seems like if tax brackets go up with chained CPI, but income goes up with regular CPI, you are better off with chained CPI.
I don't see how reaching the next higher bracket sooner can make you "better off".

I think you have this backwards.
__________________
Old enough to know better.
joeea is offline   Reply With Quote
Old 12-16-2017, 03:00 PM   #6
gone traveling
 
Join Date: Aug 2006
Posts: 741
.

Chained CPI is also a negative for the standard deduction.
Helena is offline   Reply With Quote
Old 12-16-2017, 03:00 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,112
The big question of course is what will inflation in general look like. If it stays low then the difference will be small all be it growing over 20 years. If inflation gets high then the difference could amount to up to a percent a year.
meierlde is offline   Reply With Quote
Old 12-16-2017, 03:03 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 18,392
Quote:
Originally Posted by joeea View Post
I don't see how reaching the next higher bracket sooner can make you "better off".

I think you have this backwards.
+1 backwards
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 12-16-2017, 03:06 PM   #9
gone traveling
 
Join Date: Aug 2006
Posts: 741
Quote:
Originally Posted by meierlde View Post


The big question of course is what will inflation in general look like. If it stays low then the difference will be small all be it growing over 20 years. If inflation gets high then the difference could amount to up to a percent a year.

We have been at unusual historically low inflation for a decade.
It won't last. Maybe that is why the Chained CPI was chosen.

.
Helena is offline   Reply With Quote
Old 12-16-2017, 03:58 PM   #10
Thinks s/he gets paid by the post
Tadpole's Avatar
 
Join Date: Jul 2004
Posts: 1,210
Back to my original concern. It bothers me that, if they can say I substitute cars for motorcycles, then, if they don't like the budget numbers, they can decide most people prefer to make the substitution of cars for walking shoes. An exaggeration, I realize, but the chained CPI seem more malleable than a straight CPI. What are the bounds of the assumptions made in the chain, if any?
Tadpole is offline   Reply With Quote
Old 12-16-2017, 04:19 PM   #11
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,383
Quote:
Originally Posted by pb4uski View Post
+1 backwards
You guys are both right. I do not want my income to go faster to the next bracket.

In the end, 0.5% a year is probably not that big of a deal, better than a readjustment of the actual brackets to add 5% to them.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 12-16-2017, 05:18 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 5,604
Quote:
Originally Posted by Tadpole View Post
Back to my original concern. It bothers me that, if they can say I substitute cars for motorcycles, then, if they don't like the budget numbers, they can decide most people prefer to make the substitution of cars for walking shoes. An exaggeration, I realize, but the chained CPI seem more malleable than a straight CPI. What are the bounds of the assumptions made in the chain, if any?
No limits really, this is my plan for high inflation:

Steak -> hamburger -> chicken -> tofu -> eggs -> grains -> grass clippings -> water -> air.

which is why I think it's just a sneaky lying way of saying we aren't going to keep up with inflation. An honest way would be to say CPI minus x%, instead of pretending substitution of x for y is equally as good and can go on forever.
Sunset is offline   Reply With Quote
Old 12-16-2017, 05:21 PM   #13
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 545
Quote:
Originally Posted by Helena View Post
We have been at unusual historically low inflation for a decade.
It won't last. Maybe that is why the Chained CPI was chosen.

.
I don't know, the long-term U.S. inflation rate is about 2.25%, which is only a quarter point above where we are now. I think people's view of inflation is still colored by the '70s, which were unusually historically high.

Visual data here: US Inflation Rate
__________________
Semi-ER March 24, 2017
USGrant1962
USGrant1962 is offline   Reply With Quote
Old 12-16-2017, 06:08 PM   #14
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 275
Quote:
Originally Posted by USGrant1962 View Post
I don't know, the long-term U.S. inflation rate is about 2.25%, which is only a quarter point above where we are now. I think people's view of inflation is still colored by the '70s, which were unusually historically high.

Visual data here: US Inflation Rate
Interesting that goes back pre-1880. I'm sure there is much older data too. I can't even wrap my head around how you can compare prices of stuff we spend money on now versus what they spent money on way back then. What goes in the basket of goods?!
43210 is offline   Reply With Quote
Old 12-16-2017, 06:14 PM   #15
gone traveling
 
Join Date: Aug 2006
Posts: 741
Quote:
Originally Posted by USGrant1962 View Post

I don't know, the long-term U.S. inflation rate is about 2.25%, which is only a quarter point above where we are now. I think people's view of inflation is still colored by the '70s, which were unusually historically high.

Visual data here: US Inflation Rate

Colored, maybe... but not just from the 70s.

In the 60s when I was in elementary school my teacher took our class to the local bank on the town square to open basic savings accounts [the only kind they had back in the stone age.] The interest rate was 4%.

In the 1980s CDs at my bank were paying well over 10%.

The famous book, "Your Money or Your Life", advocated early retirement living on your nest egg's interest... which at the time was earning about 10% interest.

I think it was in 2007 Chase Bank offered a 5 year CD at 5%. I emptied my piggy banks and uprooted seat cushions to take advantage of that amazing offer.

In 2007/2008, the US government sold EE savings bonds at a fixed 3%. I also took advantage of that offer up to the limit.

.
Helena is offline   Reply With Quote
Old 12-17-2017, 07:17 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,860
Quote:
Originally Posted by pb4uski View Post
+1 backwards
A digression this reminded me of. About 50 years ago I was smoking a joint with a buddy and got into an argument about day light savings time. It was in the spring and I said we had to move the clock back. We argued for about ten minutes until the light bulb lit up in my head and I realized I had it backwards. A year later, engaged in the same pastime, I reminded him of our previous argument where I mistakenly thought you should move the clock forward. He pointed out that I had mistakenly argued that you should move the clock back. I pointed out that moving the clock back is correct > off to the races for another ten minutes until I once again had the aha experience. Ever since then I just repeat the mantra "spring ahead, fall behind" and try to avoid thinking about it.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 12-17-2017, 07:41 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 18,368
Well, we shall see, won't we.
__________________

__________________
Retired since summer 1999. Gosh - is it really closing in on two decades?!?!
audreyh1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Chained CPI - SS loss Calculator imoldernu FIRE and Money 27 03-15-2013 09:22 PM
Supersize Handyman--Deal or No Deal? JPatrick Other topics 23 11-11-2011 06:34 PM
Deal, or No Deal? kyounge1956 FIRE and Money 14 12-08-2009 01:07 PM
Cheap computer deal through 8/15 - new deal! cute fuzzy bunny Other topics 55 11-24-2004 10:04 PM

 

 
All times are GMT -6. The time now is 10:26 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.