Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 10:53 AM   #1
Dryer sheet wannabe
 
Join Date: Aug 2006
Posts: 18
CPI Rate in Advvanced FireCalc - Inflation Rate

Does anyone know what rate Advanced FireCalc uses when you select CPI? My results using CPI are much worse than when I use a flat 3% rate of inflation.

Thanks
Al4
__________________

__________________
al4trade 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!

Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 11:03 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

I'm under the impression that it uses historical CPI. In the 1966 to 1972 period, inflation went nuts (well over 3%) and it would have killed a lot of hypothetical retiree ortfolios that did just fine in other periods.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 11:41 AM   #3
Early-Retirement.org Founder
Developer of FIRECalc
dory36's Avatar
 
Join Date: Jun 2002
Posts: 1,826
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

It's the Consumer Price Index on a per-year basis, which ranged from 20.7% inflation to 15.7% DEflation during the period covered. Average was 2.24%, and more typical range (+/- 1 standard deviation) was 8.4% inflation to 4% deflation.

Here's a chart of CPI for the timeframe covered by FIRECalc.

(Click on the thumbnail to enlarge)
Attached Images
File Type: gif cpi.gif (8.9 KB, 13 views)
Attached Files
File Type: gif_thumb cpi.gif_thumb (10.5 KB, 1 views)
__________________
Often uninformed, seldom undecided.

Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. Mark Twain
dory36 is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 12:51 PM   #4
Dryer sheet wannabe
 
Join Date: Aug 2006
Posts: 18
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

Dory - thanks for the response.

What are the boards' thoughts on using the annual variance of the CPI number versus a static 3%?

Thanks,
Al4
__________________
al4trade is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 01:32 PM   #5
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,402
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

Quote:
Originally Posted by al4trade
Dory - thanks for the response.

What are the boards' thoughts on using the annual variance of the CPI number versus a static 3%?

Thanks,
Al4
Personally I like the idea of using an historically-based calculator like firecalc. Once you start making changes like you suggest, then you start moving towards a Monte Carlo style simulator, which will give you more pessimistic results in general.

2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-03-2006, 02:07 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

Quote:
Originally Posted by al4trade
Dory - thanks for the response.

What are the boards' thoughts on using the annual variance of the CPI number versus a static 3%?

Thanks,
Al4
I think a static CPI assumtion will give an overly optimistic view of things. Inflation is the biggest killer of retirements, historically. You want to make sure you can survive it.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-04-2006, 01:29 AM   #7
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

Quote:
Originally Posted by al4trade
What are the boards' thoughts on using the annual variance of the CPI number versus a static 3%?
Inflation over the last century has been about 3% (admittedly the Hedonics Committee has been working overtime adjusting the goods baskets from whalebone corsets to LCD flat-panel displays) but inflation over the last 30 years has averaged 5%. Which one is a better proxy for today's inflation? Tomorrow? Next decade?

FIRECalc uses history as a predictor of the future. So why not use a Monte Carlo calculator and choose your own CPI?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: CPI Rate in Advvanced FireCalc - Inflation Rate
Old 10-04-2006, 01:40 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: CPI Rate in Advvanced FireCalc - Inflation Rate

Quote:
Originally Posted by Nords
. . . So why not use a Monte Carlo calculator and choose your own CPI?
You can do that, but your real rate of return (investment return - inflation) is what matters. Therefore, the correlation between investment return and inflation is critical to your results. Monte Carlo simulation does nothing to simulate this correlation.
__________________

__________________
sgeeeee 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
Go with TIPs or am I crazy? Mister Bill FIRE and Money 147 06-14-2005 10:25 AM
Inflation and CPI sgeeeee FIRE and Money 6 01-21-2005 08:18 PM
Withdrawal Rate Increases with Time? mccl FIRE and Money 26 05-22-2004 04:51 AM
Retiree Inflation Rate? mccl FIRE and Money 4 05-13-2004 08:51 AM
SS options in firecalc wzd FIRE and Money 4 02-16-2003 10:46 AM

 

 
All times are GMT -6. The time now is 08:19 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.