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Old 07-14-2019, 12:11 PM   #21
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I was half joking.

When people are in their late 40s or early 50s, that's when they start to think seriously about retirement.

But workers in their 20s or 30s have other more pressing needs, and retirement is something so far ahead. At that age, I was busy building my career and raising children, and all I did was to stuff my 401k to the max in addition to having after-tax savings.

The only advice that could benefit me then was to be in stock and not having so much in fixed income. Other than that, there was not much I could do differently.
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Old 07-14-2019, 12:14 PM   #22
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Originally Posted by Dtail View Post
On a related note, it appears that at the default assumptions, when one uses 3% vs. CPI, the numbers come out a bit worse.
So mechanically if one uses 3%, does the 3% rate effectively substitute for the actual CPI in those 80's inflation years?
Yes
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Old 07-14-2019, 12:27 PM   #23
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Yes
Thanks, so with that thought, I would think the lowest asset level (Firecalc) with the 3% inflation rate assumption would have been better than the asset level with the historical 1966 retiree using actual CPI.
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Old 07-14-2019, 12:38 PM   #24
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Thanks, so with that thought, I would think the lowest asset level (Firecalc) with the 3% inflation rate assumption would have been better than the asset level with the historical 1966 retiree using actual CPI.
I just went and tried a few runs with similar results which, at first glance, does not correspond with the understanding I developed over the years (or at least the way I remember it). I'll have to go back and play a bit.
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Old 07-14-2019, 04:32 PM   #25
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Thanks, so with that thought, I would think the lowest asset level (Firecalc) with the 3% inflation rate assumption would have been better than the asset level with the historical 1966 retiree using actual CPI.
I just did the option to download a spreadsheet for a starting year, so I did two for 1966. One with the Spending Models tab (had trouble finding it!) set to CPI, one with 3%. edit/add: I used $1,000,000 starting portfolio for easy math, $40,000 start for 4% WR, and 30 years (spreadsheet requires it)

I'm not too familiar with these spreadsheet outputs, but it sure looks like inflation was the killer for 1966, and way worse than a constant 3%.

For the CPI, I get (excuse poor formatting please):

Period - Inflation Factor - Infl Adj W/D - Starting Portfolio
1966 1.035 $40,691.82 $958,616.35
...
1995 4.855 $194,213.84 -$1,411,685.64


For constant 3%, I get...

1966 1.0300 $40,600.00 $958,800.00
...
1995 2.4273 $97,090.50 $2,688,451.12

Seems to make sense, 1.03^30 is 2.4273, so the actual inflation for 30 years of 4.855 seems to pass the smell test?

So with 3% inflation, the 1966 retiree would have been golden, instead of broke in ~ year 24 of 30.

The success rate stayed at 95% - but two possible explanations for that. One is that "success rate" doesn't give a lot of resolution, there could be a fairly big gap between 95% and 94%, and/or, some years may have just traded places. 1966 'wins', but a year that barely passed with an average 2% inflation losses now at 3%?

Check my work, as I said I am not very familiar with the spreadsheet output. But this seems to add up to me.

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Old 07-15-2019, 01:51 PM   #26
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Yes I think so. The worse result is from the magic of compounding.

Contrary to a lot of commenters here and on BH who seem to think 4-5% is "normal" based on overweighting the 1970s experience, the long-term inflation rate for the U.S. is less than 3%. https://www.multpl.com/inflation

EDIT - "long-term" approximating the period considered in FIRECalc.
I would just like to point out that the 'published' consumer price index, and other published inflation rates from US official sources are, IMHO, biased to make inflation look lower than it is. Whether you believe this or not, what matters is YOUR personal inflation rate. What do you spend your money on, and in what fractions? For example, if you spend 33% annually on medical, and it goes up 8% a year, then your personal inflation rate may well be higher than 3% average.
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Old 07-15-2019, 02:09 PM   #27
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The only thing you're missing is if the military/government goes south. Sadly, that's what happened to many private pensions. Even those with a $1M saved would have to cut their spending quite a bit.
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