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How is Firecalc using CPI for each iteration?
Old 05-30-2013, 11:04 AM   #1
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How is Firecalc using CPI for each iteration?

When I choose the investigation option to export to excel (on the default 30000,750000 numbers), it shows the first "Inflation Adjusted Withdrawal" as "30255.9726962" for 1960.

I want to know how it's calculating the inflation each year. It is taking the cumulative CPI change from January to December of each year and calculating a new Withdrawal Rate "ahead"? For example, is it taking the CPI change for all of 1960, determining it went up 1.7% (which correlates to the "Inflation Factor" column) and multiplies the spending for 1960 by that factor?

I guess I'm trying to figure out if calculating your expenses is done like that. I would assume that if 1960's inflation factor was 1.7%, that my expenses in 1961 would increase by 1.7%. It also seems like if it consolidates all the data year-by-year like that, that the current year (if it's not complete yet) wouldn't get counted, unless it's computed as a "full year" as-is with the remaining months blank.

Just curious.
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Old 05-30-2013, 11:34 AM   #2
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Quote:
Originally Posted by bo_knows View Post
When I choose the investigation option to export to excel (on the default 30000,750000 numbers), it shows the first "Inflation Adjusted Withdrawal" as "30255.9726962" for 1960.

I want to know how it's calculating the inflation each year. It is taking the cumulative CPI change from January to December of each year and calculating a new Withdrawal Rate "ahead"? For example, is it taking the CPI change for all of 1960, determining it went up 1.7% (which correlates to the "Inflation Factor" column) and multiplies the spending for 1960 by that factor?

I guess I'm trying to figure out if calculating your expenses is done like that. I would assume that if 1960's inflation factor was 1.7%, that my expenses in 1961 would increase by 1.7%. It also seems like if it consolidates all the data year-by-year like that, that the current year (if it's not complete yet) wouldn't get counted, unless it's computed as a "full year" as-is with the remaining months blank.

Just curious.
Not positive, but it might be the number you are looking at assumes a partial year since today is May 30th. Look at the withdrawal number in row 40, it's a full 1.7%.

But if my plan hinged on that discrepancy, I'd consider the plan less than robust enough. Retirement calculators are axes, not scalpels...
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Old 05-30-2013, 11:50 AM   #3
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Not positive, but it might be the number you are looking at assumes a partial year since today is May 30th. Look at the withdrawal number in row 40, it's a full 1.7%.

But if my plan hinged on that discrepancy, I'd consider the plan less than robust enough. Retirement calculators are axes, not scalpels...
Fair enough. I know that it's an axe. I was just curious if that was common practice outside of Firecalc. I do see the full 1.7% withdrawal.
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Old 05-30-2013, 12:02 PM   #4
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I actually thought about it more, and realized that if Firecalc didn't use the inflation number for the same year (and instead projected it to the next year) then 2013 would be useless.
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Old 05-30-2013, 12:22 PM   #5
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Not sure if this is applicable to the question, but I did notice this:

30000⋅(1+(.017/2)) = 30255

IOW, 30255 reflects half the CPI # you provided. I guess that could make sense because we don't spend all our money at the end of the year, but fairly evenly throughout the year. Rather than use monthly numbers, they probably simplify this to a simple average throughout the year. Effectively, half at zero inflation, half at full inflation for the year.

Plausible?

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Old 05-30-2013, 12:39 PM   #6
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Originally Posted by ERD50 View Post
Not sure if this is applicable to the question, but I did notice this:

30000⋅(1+(.017/2)) = 30255

IOW, 30255 reflects half the CPI # you provided. I guess that could make sense because we don't spend all our money at the end of the year, but fairly evenly throughout the year. Rather than use monthly numbers, they probably simplify this to a simple average throughout the year. Effectively, half at zero inflation, half at full inflation for the year.

Plausible?

-ERD50
I actually think the first block of data is completely wrong. At the bottom, is another set of data, which provides the number equating to a 1.7% increase.

I'm trying to decipher the spreadsheet based on the Shiller data, because the Firecalc spreadsheet shows a positive Market Growth and Fixed income growth for 1960, but the Shiller data says otherwise...
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Old 05-30-2013, 12:43 PM   #7
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You might try to search the forum. I think we had some discussion at one point that the spreadsheet may just be an output of the program (the numbers are not actually used in the calculations), and they may not make sense.

But I don't know offhand.

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Old 05-30-2013, 12:52 PM   #8
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You might try to search the forum. I think we had some discussion at one point that the spreadsheet may just be an output of the program (the numbers are not actually used in the calculations), and they may not make sense.

But I don't know offhand.

-ERD50
I'm doing exactly that, right now. I haven't had much luck yet.
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Old 05-30-2013, 01:53 PM   #9
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I figured it out. Turns out Firecalc takes the difference between January 1961 and January 1960 to determine the Market Growth for the year 1960. I was calculating using January 1960 and December 1960. The difference in those 2 is the difference between a 3% gain and a 2% loss
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