The inputs are in today's current dollars. The outputs reflect inflation and asset growth.
Uhhh... no, the ending portfolio balance is expressed in terms of the dollars as of the beginning of the retirement, not the end.
So in your example, the 1930 ending portfolio balance is expressed in 1901 dollars.
The reason for this is simply that the only thing meaningful to someone contemplating retirement is the current spending power of their assets. It only makes sense to relate all future results to the information known to the retiree prior to his decision.
So, the 1901 retiree, with a crystal ball, would know that his spending ability would be unchanged through 1930, and would also know how big a party that his survivors could have at the end.
The previous version of FIRECalc gave terminal portfolio balances in unadjusted dollars. This was not very useful, because it really didn't tell someone thinking of retiring what their ending portfolio was really worth. That's why in the revision the dollars were all adjusted to the dollar value as of the time of retirement.
Again, the philosophy is to work with what is known just before retirement, and not to report values that have no meaning without adjustments.
This certainly isn't perfect, because someone retiring on 40,000 a year in 1915 is certainly living a vastly different lifestyle than someone retiring on 40,000 in 2006.
However, if the 1915 retiree would wind up with, say, 400,000 at the end, he would reasonably expect to be able to spend 10 times his normal annual spending on his departure party at that point, regardless of the inflation during the previous years. The same would be true for the 2006 retiree.
Hope this clarifies --
dory36
I really like how FIRECALC does is, and I have modeled my situation quite a bit. For me, I can see the range of where my portfolio might be in 30 years, and do a few historical runs to see how my income might vary from year to year, and the numbers "make sense" because they are in current dollars, and because I know what my current income and current portfolio can do for me, so it's easier to understand projections in those same dollar terms.Here is how dory36, the guy who created FIRECalc, responded to the same question in 2006:
The thread is here: http://www.early-retirement.org/forums/f36/portfolio-end-of-year-balance-22370.html#post414227
So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?
IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?
So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?
IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?
So, when FC says that my ending balance (35 years from now) could be an average of $5,000,000 is it saying that in today's dollars?
IOW, it could actually be $20,000,000 but only having the buying power of $5,000,000? Or is it saying that it might be $5M which would only allow me to buy a very small house at that point?
Once again, audreyh1, thanks!Yes. Buying power of $5M in today’s dollars.
Have not run FIRECalc in a while. So, just did a quickie.
If I keep the same lifestyle, FIRECalc says the best case is I will die with $16M in 20 years. In the worst case, I still have what I do now. But these numbers are in today's dollars, so I would have a lot more in nominal dollars in 20 years.
Lemme see if I change the run to 30 years, even though I doubt I will live that long...
PS. Oooh, it looks a lot better in 30 years. I will try to hang on for that long to see it...