Poll! What Inflation Rate Do You Use?

[calmloki]

real simple - when you fill out retirement planners like Firecalc what do you use as an inflation rate? For extra internet credit (and not part of the survey) what do you use as a rate of return?

I use 3 or 3.5% for inflation and 3% for return because my name is Eeyore.

1. 2% inflation,
2. 3% inflation,
3. 4% inflation,
4. 5% inflation,
5. 6% inflation,
6. 7% inflation,
7. 8% inflation,
8. it's the end of the world as we know it 1980

Historical Inflation Rates: 1914-2017 | US Inflation Calculator

 

[REWahoo]

None of the above. I use what is shown here:

 

[Blue Collar Guy]

I clicked the box that said CPI

 

[rodi]

For firecalc I use CPI.

For deterministic calculators like Quicken lifetime planner I use 3% inflation and 5.5% return. (or 2.5% real return.)

I'm not Eeyore... but far from Tigger.

 

[athena53]

I know I'm being conservative with 4%.


What I learned early on in financial modeling, though, is that the really important variable is the "gap" between your chosen rate of inflation and your investment return. In other words, if you use 3% inflation/5% on investments and inflation turns out to be 4% but you make 6% on investments, you'll still be OK. The trouble arises when actual long-term inflation is 4% but you get 5% on your investments.

 

[braumeister]

I'm pretty conservative, so I use CPI in FIRECalc and other calculators where it's available.

For my own spreadsheet I use 3.3% which I think is the historical average.
For estimating returns, I use 4.3% which is 1% real.
For COLA, I use 2.3% or 1% under the inflation rate. (told you I was conservative).

 

[Blue Collar Guy]

I'm pretty conservative, so I use CPI in FIRECalc and other calculators where it's available.

For my own spreadsheet I use 3.3% which I think is the historical average.
For estimating returns, I use 4.3% which is 1% real.
For COLA, I use 2.3% or 1% under the inflation rate. (told you I was conservative).

Dem dare iz a lota different numbers,lol.

 

[W2R]

I use "CPI" in FIRECalc, like so many others here do.

Otherwise, sometimes I use 3%.

Sometimes I use 5% for my investment return (so that would be 2% after inflation).

 

[LuckyDog]

3%. This may change over time.

 

[scrabbler1]

In my spreadsheet, I use two inflation rates. I use 3% for my non-medical expenses and 10% for my medical expenses. There was no choice for this in the poll, though.

 

[FIREmenow]

In my spreadsheet, I use two inflation rates. I use 3% for my non-medical expenses and 10% for my medical expenses. There was no choice for this in the poll, though.

I use different rates in my spreadsheet as well - one for cost of living (spending, SWR) increases, and a lower one (by about 1.5%) for SS COLA increases.

 

[YVRRocketSurgery]

I use 2.5% for my spreadsheet and backdate based on the past year's CPI. Will round up to 3% for systems that can't do half a percent.

I use 6% nominal rate of return, changing to 5.5% upon retirement, which I thought was a somewhat conservative expected rate of return until I saw so many people here use 4%-5%. Some of my wacky friends are using 7% thinking they're conservative based on historical 10% returns.

 

[Koolau]

I assume 3% but I'm guessing that will go up sooner or later - maybe up a lot. YMMV

 

[mistermike40]

I use 3.3% inflation and 6% ROI

 

[bradaz2488]

I voted 3% because I have assumed 2.81% for this year. I use 7.5% for healthcare expenses and 2.5% for all other expenses so my rate of inflation slowing increased each year. When I'm 73 our assumed inflation rate is 3.5%, 4% at 80 and 4.5% at 90..... CPI has been only 1.13% since we retires, but our healthcare cost have average 16% increase/year. We have manage to remain below budget each year, but if HC costs continue to rise at their this rate we will have to make some adjustments to yearly expenses to stay on plan....

 

[mamadogmamacat]

3% for inflation except for medical I use 8% (so far 18 months into ER actuals have been 1% and 6.5%, respectively) ROI is 6% (inflation plus 3%) with actual at 10.3% so far

 

[Mulligan]

Survey! What Inflation Rate Do You Use?

I mentally plan 10% for healthcare and really zero for everything else. Healthcare is really my only long term concern. And I have an ace in the hole card if I need to with that to make it dirt cheap until Medicare. My monthly expenses are roughly same now as it was 7 years ago. Gas cheaper, electric cheaper (thanks to a metal roof), food bill unchanged, travel isnt higher overall. I finally let go of the 70s and 80s ten years ago. My biggest monthly bill is my mortgage and its fixed for 23 more years or until I decide to pay it off. Oh wait, that darn mortgage and car insurance went up this year...Time to shop around next year and play that dumb game again and get a better rate.

 

[traineeinvestor]

Answer 1: use new-normal historical numbers which would suggest something in the 2.5-3.5% range (Inflation is a bit higher out here than in the US).

Answer 2: recognise that our household budget is weighted towards items which have generally increased at rates faster than general CPI numbers: property rates, utility costs, medical, insurance, education suggest a number towards the upper end of that range is appropriate.

Answer 3: recognise that I don't know much about the future and assume that over a long enough time horizon the return on risk assets (primarily equities and real estate) should act as stores of real wealth and match or beat inflation (with the potential for considerable variation in individual years).

In practice I am assuming around 3-3.5%.

 

[Totoro]

Well, the stated objective of the ECB (European Central Bank) is: "close to, but below 2%".

My best guess is that they'll manage.

 

[Car-Guy]

3%

 

[I was misinformed]

A 17-year retrospective on "real" inflation

real simple - when you fill out retirement planners like Firecalc what do you use as an inflation rate? For extra internet credit (and not part of the survey) what do you use as a rate of return?


Historical Inflation Rates: 1914-2017 | US Inflation Calculator

A related question that may merit discussion here is how accurately official CPI numbers reflect your real inflation rate. Everyone's situation is different, of course, but looking back over the last two decades of supposedly very low inflation in the US I can see issues in my personal situation. I am in my 17th year in my current condo and coincidently our monthly association fees have almost exactly doubled during that period for a very nearly 4% mean annual rate. If I use a BLD calculator for the last 17 years the increase is only ~45%.

Our condo fee covers a wide range of expenses including all utilities (not monitored for individual units), insurance, employee salaries, and a long term plan of maintenance/replacement (but not exceptional expenses for which we have had special assessments). So perhaps our monthly fee is not a bad proxy for overall expenses (ex healthcare, education which have exhibited even higher inflation) that a household faces?

Looking back over the last 17 years, the property tax on my own unit has nearly doubled, lunch at my (now former) workplace has doubled, our local public transportation fares have gone up 150% with even higher fares coming soon. Airline tickets on the one international route I have used several times per year have essentially doubled.

Of course there are expenses that have not risen or have actually fallen, such particularly in the internet/telecom and home computer areas.

 

[imoldernu]

Since I no longer use financial calculators, and don't have a long horizon to plan for, my overly simple plan...[ SS, plus ROI plus (net worth divided by life expectancy) ].... I don't use inflation as a factor in planning, since income and expense have been balancing out for us, for the past 10-15 years.

I don't recommend that, it's just my answer to the question.

 

[Koolau]

A related question that may merit discussion here is how accurately official CPI numbers reflect your real inflation rate. Everyone's situation is different, of course, but looking back over the last two decades of supposedly very low inflation in the US I can see issues in my personal situation. I am in my 17th year in my current condo and coincidently our monthly association fees have almost exactly doubled during that period for a very nearly 4% mean annual rate. If I use a BLD calculator for the last 17 years the increase is only ~45%.

Our condo fee covers a wide range of expenses including all utilities (not monitored for individual units), insurance, employee salaries, and a long term plan of maintenance/replacement (but not exceptional expenses for which we have had special assessments). So perhaps our monthly fee is not a bad proxy for overall expenses (ex healthcare, education which have exhibited even higher inflation) that a household faces?

Looking back over the last 17 years, the property tax on my own unit has nearly doubled, lunch at my (now former) workplace has doubled, our local public transportation fares have gone up 150% with even higher fares coming soon. Airline tickets on the one international route I have used several times per year have essentially doubled.

Of course there are expenses that have not risen or have actually fallen, such particularly in the internet/telecom and home computer areas.

I agree with you. The inflation we each experience can be dramatically different than anything official. The mix of expenses for a retiree can be quite different from the "average" person or family. The good news in our case is that we seem to find fewer and fewer things to buy as things we must purchase rise in price.

By the way, I love your User Name - from my favorite movie!

 

[akck]

I use 3% for expenses and 2% for income (pension & SS). For rate of return, I use a range to find out at what level will my plan fail. So far, it doesn't fail at a 0% return.

 

[pb4uski]

For firecalc I use CPI.

For deterministic calculators like Quicken lifetime planner I use 3% inflation and 5.5% return. (or 2.5% real return.)

I'm not Eeyore... but far from Tigger.

+1 but I use 2.7% for inflation and 5.9% for return (3.2% real return) in QLP.