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What inflation rates do you use
Old 06-20-2012, 12:51 PM   #1
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What inflation rates do you use

When you are calculating your retirement needs and the life line of your money -

What inflation rates are you applying to your pensions, SS, military retirement checks, etc?

What inflation rates are you applying to your needs (budgets)?

Myself, I built my own retirement calculator with variable rates. I am using 1.74% for SS and my Military retirement check (they have averaged 2.47% over the last 30 years and they are talking about changing the inflation rate index calculations for the payouts in these areas) and I am using 3.44% for my budgets up to age 70 and 2.74% after age 70 because I figure when I am 70 I will become less active and a lower inflation rate should be tolerable.
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Old 06-20-2012, 01:30 PM   #2
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3.5% for expenses and and SS (but projected SS at 75% of what is promised at 62), and 0% for pension, as that portion is our known reality. 6% on investments. Projected to live until 94 and DH 94-just to be safer with projections
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Old 06-20-2012, 01:36 PM   #3
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Yes, I am using 75% for projected/expected SS to be collected also, but there is always an annual inflation expectation with subsequent years and I am trying to see what others are considering or are using.

I am hoping mine are conservative enough for there to be some gravy on my retirement benefits...
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Old 06-20-2012, 02:21 PM   #4
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I use 3% for expenses and 2% for SS and pension for all years into the future. I agree that inflation will be lower once we get beyond a certain age, but keep it higher as a safety factor. One reason my inflation might be lower is because housing is around 30% of the budget and it's fixed and most will disappear (payoff 3-5 years after retirement for income reasons, but contemplating going to maturity). I'm using 100% of projected SS because 75% is 10+ years after I start collecting. Years ago, I used 50%, but feel I'm close enough now to be grandfathered in before any changes.
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Old 06-20-2012, 02:49 PM   #5
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Just an FYI for those that use FIDO's Retirement Income Planner tool. The current standard rate is 2.7% (adjusted annually) for all projections with the exception of health care. That is currently pegged at 7%.

BTW, here's a site for historic inflation rates, by month/year:

http://www.inflationdata.com/inflati...Inflation.aspx
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Old 06-20-2012, 03:16 PM   #6
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3.0% inflation; 5.5% investment return (2.5% real return)
6.0% inflation for DS college costs
100% of SSA provided estimate for SS
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Old 06-20-2012, 03:59 PM   #7
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Originally Posted by rescueme View Post
Just an FYI for those that use FIDO's Retirement Income Planner tool. The current standard rate is 2.7% (adjusted annually) for all projections with the exception of health care. That is currently pegged at 7%.

BTW, here's a site for historic inflation rates, by month/year:

http://www.inflationdata.com/inflati...Inflation.aspx

That is similar to one of the sites (plus several others) that I created mine from. A few years back I downloaded inflation indexes by major categories (food, housing, medical, etc) and overall inflation indexes. Then created the ones I am using based on where my primary needs come from with a fudge factor and crossed checked from sites like the one you provided for reference... Did it as a hobby and as a way that I could control my retirement calculator better.

The biggest danger I see in online calculators is that they use a flat % for the entire retirement scenario and inflation will not be flat across the board. SS, Pensions, etc will have different inflation rates. Even your investment expectations will / should change as you age and take a less active role.
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Old 06-20-2012, 08:15 PM   #8
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I do everything in constant dollars and then apply real increases to selected items.
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Old 06-21-2012, 06:08 AM   #9
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3.0 except for Health Insurance (10%) and Food&Fuel(5%), I'd rather my estimates to be little high than low.
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Old 06-21-2012, 06:20 AM   #10
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Quote:
Originally Posted by rescueme View Post
Just an FYI for those that use FIDO's Retirement Income Planner tool. The current standard rate is 2.7% (adjusted annually) for all projections with the exception of health care. That is currently pegged at 7%.

BTW, here's a site for historic inflation rates, by month/year:

http://www.inflationdata.com/inflati...Inflation.aspx
Having used FIDO's RIP tool (I am a Fidelity customer), I used this split on expenses when I developed my own spreadsheet. I currently have 10% for medical expenses and 3% for non-medical. For my investment income, which is nearly all dividends (through age 65, which is as far as I have projected because those are my most important years), I don't have any inflation factor in it. Instead, I assume certain cents per share for each fund and build into the spreadsheet reinvestment of any surplus.
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Old 06-21-2012, 07:17 AM   #11
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Quote:
Originally Posted by rescueme View Post
Just an FYI for those that use FIDO's Retirement Income Planner tool. The current standard rate is 2.7% (adjusted annually) for all projections with the exception of health care. That is currently pegged at 7%.

BTW, here's a site for historic inflation rates, by month/year:

http://www.inflationdata.com/inflati...Inflation.aspx
Hmm...when I run the FIDO RIP, it shows me 2.3% inflation, not 2.7%?
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Old 06-21-2012, 07:21 AM   #12
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Originally Posted by Semiretired2008 View Post
The biggest danger I see in online calculators is that they use a flat % for the entire retirement scenario and inflation will not be flat across the board. SS, Pensions, etc will have different inflation rates. Even your investment expectations will / should change as you age and take a less active role.
In our case, both being retired and pre-pension/SS, all our current income comes from our investments.

We keep tight control of our budget, both in spending and tracking and are a bit "anal" to ensure we track and more importantly understand our "numbers".

Being that I retired a bit over five years ago (DW a few months ago), our personal rate of inflation (PROI) has actually been less than the stated current average, due to our personal lifestyle.

One thing to remember on any calculator is that the rate of inflation is constant, based upon long term history - as is any results, and most (including FIDO's RIP) can be overridden if you want to be more conserative.

Another is that for us (being retired), our starting number (along with inflation rates) are based upon the current day's number. Sure, if you use any calculator as a "guesstimate" for planning during your accumulation years you may be off over the long term, but our long term grows shorter and shorter with each passing year, being in the distribution phase thus being a bit more accurate in the current day, and becoming more acurate with each passing year.

BTW, year over year of the RIP forecast during the last five years of retirement have actually resulted in being better than plan. That's due a bit to RIP discounting your first year retirement assets by a bit more than 10%, to account for the possibility that you retire in a down market situation. Unfortunately, a lot of folks can't choose the date of retirement, but the tool takes that into consideration when running the forecast.

Is it (or any software forecast planning tool, paid for or free) is not perfect. However, it's a bit better than nothing or even a spreadsheet which cannot take advantage of the various simulations that are run against long term market conditions - both positive and negative. And in RIP's case, it also interfaces to M* to break down your/spouses current day portfolio (both FIDO and non-FIDO holdings) to see the actual breakdown of your holdings as input to the forecast model.

BTW, in another post (and not a personal "dig" - your life is your life) you stated that you trade about 1-2x a week. That means you change your portfolio mix (regardless however small) more than 50-100 times a year. I would think that would add a bit more varience, regardless of any plan you are trying to project. For me, that would make my personal plan (regardless of forecast tool) "suspect", regardless of any projected return or anticipated inflation rate.
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Old 06-21-2012, 08:47 AM   #13
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2.5% inflation for SS & most expenses. 5% (double) for medical
3.5% real return on investments

I have run calculations up to 4% inflation and we are ok.
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Old 06-21-2012, 10:06 AM   #14
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Quote:
Originally Posted by Semiretired2008 View Post
When you are calculating your retirement needs and the life line of your money -

What inflation rates are you applying to your pensions, SS, military retirement checks, etc?

What inflation rates are you applying to your needs (budgets)?

Myself, I built my own retirement calculator with variable rates. I am using 1.74% for SS and my Military retirement check (they have averaged 2.47% over the last 30 years and they are talking about changing the inflation rate index calculations for the payouts in these areas) and I am using 3.44% for my budgets up to age 70 and 2.74% after age 70 because I figure when I am 70 I will become less active and a lower inflation rate should be tolerable.
I've been using 2.5%.

But if you want the bond market's opinion which is maybe the best, just take the Treasury bond rate and subtract the TIPS rate (for same maturities). For instance, right now we see for the 10 year rates:

Treasury - TIPS = 1.6% - (-0.5%) = 2.1% inferred inflation

Note: TIPS are at negative real rates right now.

Bond rate info: U.S. Government Bonds, Treasury & Municipal Bond Yields - Bloomberg
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Old 06-21-2012, 04:43 PM   #15
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Originally Posted by rescueme View Post
BTW, in another post (and not a personal "dig" - your life is your life) you stated that you trade about 1-2x a week. That means you change your portfolio mix (regardless however small) more than 50-100 times a year. I would think that would add a bit more varience, regardless of any plan you are trying to project. For me, that would make my personal plan (regardless of forecast tool) "suspect", regardless of any projected return or anticipated inflation rate.

I trade (not really day trade, but almost) with 10 - 15% of my portfolio. I use that as my mad money so to speak for my toys (computers, software, fishing gear, extra vacations, etc.)... When I plug my numbers into my forecast tool I let it ride at the standard rate for my investments - I always exceed it with my trades...

As I age I will stop trading when my facilities can no longer keep up with the fast pace - so I do not want to consider the extras I make trading in my forecasts - for now it is considered gravy to make everything taste better...
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Old 06-24-2012, 01:06 PM   #16
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5.5% on COL and CPI on pensions. 5% on investment returns.
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