Inflation adjustment box

[firemediceric]

On FIRECalc under the "Other income/spending" tab at the bottom of that page there is the box to check or not for "Inflation Adjustment." In my ignorance, I'm not sure how to use that option despite the explanation given on that page.

How it applies to me, I think, is in regards to my pension. At 6 years after retirement I get a 3% COLA and then another 3% every year there after.

How should I use that "Inflation Adjustment" option and how am I best to take into account that COLA dynamic?

 

[pb4uski]

So do you get 6 years of fixed payments and then the COLA starts? Or a pension with a 3% COLA starts 6 years after you retire?

Assuming the latter, put the amount for the first year of benefits in the box, the year that benefits start and check the Inflation-adj? checkbox. I believe that FIRECalc will increase pension incoem for inflation... not necessarily a fixed 3%... unless you change the inflation assumption to a fixed 3% on the spending models tab. I think I would run it both ways and see if the results are very different.

 

[firemediceric]

I will get a fixed monthly amount on the first day of the month following that in which I begin retirement.

I will continue getting that same fixed-rate every month for 6 years. At the beginning of year 6 I will get to 3% COLA. I will continue to get a 3% COLA every following year

 

[pb4uski]

Well, you have a few choices.

One would be to put the fixed amount in starting in your retirement year with the inflation box unchecked, along with an offsetting off-chart spending for the same amount beginning in the year the inflation adjustments start.... that will provide for the fixed pension benefits... then add an inflation adjusted pension starting in 6 years after retirement.

The downside is that uses all three available pension inputs.

Another choice would be to do just the last part to input the inflation adjusted pension starting in 6 years and then increase your stash for 6 years times the annual pension amount... or perhaps 85% of that total for the first 6 years.... should be a reasonable approximation.