Have you got a spreadsheet to plan your retirement forecast and income?

Neither of those is really a reason not to use after inflation growth.

There is one reason not to use inflation, though: a plan to pay off an interest only mortgage. If you use today's money throughout you'll also be increasing your mortgage balance by inflation each year. Since it stays the same that means you'll have too much in your plan to repay it. You can deal with that by using negative inflation just for the mortgage portion.

I tend to use cfiresim for main planning because it handles the sequence of returns risk issue.

On point 2 I was expecting it to make a big difference if you withdrew from a growing pot - i.e. If you withdraw 4% from the pot at the same time as it grows by 5% then the pot would actually be getting bigger each year for the first few years. Whereas if you ignore inflation and most of the growth then the pot would show as getting smaller from year 1. Having run a few scenarios through with both inflation included and not I was surprised to see that you are both right, and the year when the pot is emptied seems to be more or less the same either way.

Despite this, Personally I am going to stick with including inflation and growth in my spreadsheet as I want to front load my draw down amounts when I am younger and more active.

Lois_and_CK wrote: »

I'm trying to keep it all as simple as possible - and I appreciate it's mostly finger in the air guessing at inflation and growth and so on - but have I missed anything that any of you might have included in your own forecasts/spreadsheets?

I also include an assumption for tax liability on the money I plan to drawdown. I work on the basis that the first x% of any drawdown is tax-free (so x% of each annual amount, as opposed to the first x% of the whole lot)

SL

Lois_and_CK wrote: »

Thanks everyone. I'll also take a look at that cfiresim. Exciting weekend ahead!

Firecalc (firecalc.com) is useful too.

Be aware that they are both based around USA-only stock market returns which are a little higher than most other markets. See Monevator (monevator.com/world-stock-markets-data) for more detail.

brewerdave wrote: »

I've got several spreadsheets running -but I take quite a pessimistic view!
Based on our outgoings currently I've built in 7% year on year cost inflation,whilst I have only got 2.5% for SP and investments, and 1% for my and wife's DB pensions. As a result we will be living in a cardboard box by the time I'm 90!!

7% cost inflation! There's pessimistic, then there's 7%...

I guess you could break down your cost profile into a number of discrete segments, and estimate the cost volatility/inflation against each.

For example:

Loan servicing: NIL. I do not want to be carrying debt in retirement. I will work until any o/s loans (mortgage) are either paid off entirely or finalised with some of the lump sum.

Food: the general trend is downwards, but Brexit will mean we are dependent on more expensive imports, so i'd perhaps look at 2-3% cost inflation here.

Fuel: ultimately it's getting more expensive AND pegged to the USD. Perhaps 5% is pessimistic enough?
I'm using heating oil, and price volatility (as well as overall cost) is frightening.

Travel: will be largely based on currency rates (assuming overseas travel). It's already down 15% post Brexit vote, and I don't see much of a long term adverse trend there.

Repacement goods: I guess (as Bill Bryson notes) that once retired I will really only be replacing stuff rather than buying more. We don't make much here anymore, which means FX and import tariffs will apply in the future. The big one here would be replacement vehicles.

Entertainment: still a lot of downwards pressure on price, and frankly most of this category is discretionary spend.

Tax: here's where any estimates might get interesting. Post Brexit we could increase tax, introduce import tariffs etc. That would have significant impact in the short to medium term.

Overall I guess my gut feel is that 2% is reasonable for a blended cost inflation rate, but with an eye on post Brexit tinkering on imports.