Can You Help Me to Understand the Impact of Inflation on FIRECalc results?
Ok, so I have done a few runs using FIRECalc and used the Investigate function to see how much I would need in my investment portfolio today in order to achieve my retirement income goal with a certain degree of confidence.
When I use the FIRECalc CPI default choice for inflation, FIRECalc tells me I would need approximately $1,253,775 in my investment portfolio in order to have the retirement income I am seeking with 95% confidence.
When I use 3 percent as the rate of inflation, FIRECalc tells me I would need approximately $1,475,936 in my investment portfolio in order to have the retirement income I am seeking with 95% confidence.
So I found a chart that includes the annual historical rate of US inflation for the years 1914-2013. Since my retirement plan is based off of a 50 year time period, I used the data for the 50 year time period between 1964 and 2013. The average rate of inflation during this period was 4.18 percent. When I use 4.18 percent as the rate of inflation, FIRECalc tells me I would need approximately $1,837,043 in order to have the retirement income that I am seeking with 95% confidence.
I kept all other variables constant, the only one I altered was th rate of inflation.
Why do I get such a large difference between the required portfolio starting value using the FIRECalc default CPI rate when compared to the results I get when using CPI data that I acquired for the 50 year period between 1964 and 2013? Why do I get such a large difference between the required portfolio value using the default CPI rate when compared to the result I get using 3 percent as the rate of inflation.
As you con see, the starting portfolio value requirements are quite different depending of the percent used for inflation. I want to make sure I have thoroughly considered this issue before I pull any retirement trigger.
Any insight?
So I found
Ok, so I have done a few runs using FIRECalc and used the Investigate function to see how much I would need in my investment portfolio today in order to achieve my retirement income goal with a certain degree of confidence.
When I use the FIRECalc CPI default choice for inflation, FIRECalc tells me I would need approximately $1,253,775 in my investment portfolio in order to have the retirement income I am seeking with 95% confidence.
When I use 3 percent as the rate of inflation, FIRECalc tells me I would need approximately $1,475,936 in my investment portfolio in order to have the retirement income I am seeking with 95% confidence.
So I found a chart that includes the annual historical rate of US inflation for the years 1914-2013. Since my retirement plan is based off of a 50 year time period, I used the data for the 50 year time period between 1964 and 2013. The average rate of inflation during this period was 4.18 percent. When I use 4.18 percent as the rate of inflation, FIRECalc tells me I would need approximately $1,837,043 in order to have the retirement income that I am seeking with 95% confidence.
I kept all other variables constant, the only one I altered was th rate of inflation.
Why do I get such a large difference between the required portfolio starting value using the FIRECalc default CPI rate when compared to the results I get when using CPI data that I acquired for the 50 year period between 1964 and 2013? Why do I get such a large difference between the required portfolio value using the default CPI rate when compared to the result I get using 3 percent as the rate of inflation.
As you con see, the starting portfolio value requirements are quite different depending of the percent used for inflation. I want to make sure I have thoroughly considered this issue before I pull any retirement trigger.
Any insight?
So I found