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Inflation adjusted checkbox seemingly ignored
Old 04-15-2015, 02:44 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2015
Location: Austin
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Inflation adjusted checkbox seemingly ignored

FIRECalc. What a great tool.

I've been running some scenarios in FIRECalc 3.0 and came across what could be something I don't understand or could be a bug.

On the "Other Income / Spending" tab, I enter a pension, say $10,000 starting in 2018. I remove the check in the "inflation adj?" checkbox, which I assume means that the amount will stay $10,000 annually and not be increased for inflation.

But what I see in the results is that $10,000 is indeed inflation adjusted in the calculations. This is verified by looking at the data and formula spreadsheet, which I generated using 1960 as the first year. The first pension payment is not $10,000 as it should be, but is inflation adjusted to $10,546, contrary to the clearing of the "inflation adj" checkbox.

In fact, checking or not checking the "inflation adj" checkbox makes no difference in the pension amount in the generated data and formula spreadsheet.

Do I not understand what that "inflation adj" checkbox means, or is this a bug?
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Old 04-16-2015, 01:03 PM   #2
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I'm not sure, but I seem to recall some discussion that the spreadsheet outputs may not accurately reflect what the internal calculations are doing. Maybe someone else can remember.

I'd suggest a test - use some extreme and simple numbers to see if the actual graph values make sense. The graph is inflation adjusted (today's dollars), so a graph of a future pension w/o inflation should show a decline in value (except for a few years of deflation post Depression). The flurry of lines make this difficult to do with certainty, but I think it can be sorted out.

I'm suspicious that a future non-inflation pension may get incorrectly adjusted by inflation up to the time it is paid, but I don't know.


-ERD50
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Old 04-16-2015, 01:24 PM   #3
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Ran some tests, I think it's right.

--my data here --

I entered a 75 year time frame (gets results down to about 4 runs). The graphs don't seem to be showing anything out that far, but the text makes sense.

I did 0 portfolio, 0 spend, set a no-inflation off-chart pension income of $100,000 in 2089 (so the last year of the cycle). I set portfolio to short term treasuries to limit market influences (I think you get one year of market variation, the income is at the start of the year?). It shows a portfolio of just about 1/10 of $100,000. Makes sense if you assume 3% inflation:

0.97^75 ≈ 0.10183101

When I click inflation adjust - it is around the $100,000 value - makes sense.

Whether the spreadsheet accurately reflects the output, I guess that's a question for the maintainers of the tool.

-ERD50
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Old 04-17-2015, 11:21 AM   #4
Confused about dryer sheets
 
Join Date: Apr 2015
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Hello ERD50, thanks for the test. Your tests spurred me to do some additional simple scenarios in which I specify no investments and no spending. Under the portfolio tab, I used the "consistent annual market growth" of 0% but an inflation rate specified.

With that, I input a pension with and without inflation adjustment. And the accumulated amounts were smaller with the inflation adjustment off, as one would expect.

As you pointed out, the spreadsheet may not accurately reflect the output.

I'll keep playing with it. And thanks again for looking at it.
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