Quicken Retirement Planner Question

[bizlady]

I am confused about one item in the retirement planner of Quicken.

Hypotetically, if I budget $50,000 a year in expenses, and set inflation at 3.5%--

then does the plan assume I would withdraw

$50000 in ACTUAL DOLLARS year 1

$51750 year 2

$53561.25 year 3 etc??

When a new year pops up, the planner says $50000 again, so that is what is confusing me.....

 

[FIREd]

I am confused about one item in the retirement planner of Quicken.

Hypotetically, if I budget $50,000 a year in expenses, and set inflation at 3.5%--

then does the plan assume I would withdraw

$50000 in ACTUAL DOLLARS year 1

$51750 year 2

$53561.25 year 3 etc??

When a new year pops up, the planner says $50000 again, so that is what is confusing me.....

Quicken uses current dollar values for its retirement planner. So all amounts quoted in the planner are 2009 dollars.

 

[bizlady]

So when 2010 comes, am I withdrawing $50,000 or $51750

I just am not seeing how the plan accounts for inflation.....

 

[FIREd]

Let's say inflation is 3.5%.
Let's say you assumed that your nest egg will grow at 8% (nominal rate) per year, or 8%-3.5%=4.5% (real rate) per year.
Let's say your expenses will increase at 3.5% (nominal rate) per year or 3.5%-3.5%=0% (real rate) per year.

When quicken does the calculation, it uses the real rates. Your expenses will remain constant throughout the years and your portfolio will grow only at 4.5%. That's how they take inflation into account.

 

[walkinwood]

So when 2010 comes, am I withdrawing $50,000 or $51750

I just am not seeing how the plan accounts for inflation.....

You'll withdraw the inflation adjusted value of $50,000. So, it will be 50,000 * (1 + (CPI for 2009)). If CPI was 3.5%, than you would withdraw $51,750. You then need to update your annual living expenses in the planner to the inflation adjusted value.

Then, in 2011, you do the same thing, and so on.

Most retirement planners work using "real" values. That makes it much easier to visualize your expenses and balances.

Does this answer your question?

 

[ziggy29]

Hypotetically, if I budget $50,000 a year in expenses, and set inflation at 3.5%--

then does the plan assume I would withdraw

$50000 in ACTUAL DOLLARS year 1

$51750 year 2

$53561.25 year 3 etc??

Correct, where "actual" dollars are nominal dollars.

When a new year pops up, the planner says $50000 again, so that is what is confusing me.....

Presumably they are using "real" (inflation-adjusted) dollars. Your "real" withdrawal stays fixed, but your "nominal" withdrawal is adjusted for inflation.

 

[bizlady]

Ok- I think I get it--

Using the example first stated, in 2010 I would adjust my living expenses to $51750 and withdraw that, and continue in future years doing the same (adjust CPI etc)---right?
THANKKS folks!