Flexible Retirement Planner Support Forum

Hi again Jim,

I said,

"If it says for instance "portfolio value at retirement is $292K" do I have to multiply that number by 2 on my own to get the amount I really need to shoot for in order to account for 20 years into the future (since things in 20 years will ? Or is the calc saying that the number is actually $292K?"

Your reply,

"You would need to adjust that value to turn it into a nominal amount. ...
The $293k number is the value in 2011 dollars, so the real number you're shooting for will be larger. How much larger depends on the inflation rate and the time....

...even though all the calculations in the planner are definitely taking inflation into account."

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OK. I know that using a 3.5% inflation rate that numbers will double in 20 years. If the above is true, doesn't that mean that my 97% success rate is very wrong - given that everyone needs to double their number at the end of the simulation. That would mean that my success rate is actually closer to ZERO. Is that right? I hope not, but it seems to be the case. If so, is everyone else using this calc aware that they have to change the number at the end to represent future dollars - or in my head - the ACTUAL amount that one would need?

Also, do you have plans to rework the calc so that it shows all numbers changing and advancing with the rate of inflation? You say above that all calculations take inflation into account, but if the user can't visually see this (numbers are constant and do not change) and they also have to physically double the end result numbers themselves I don't see how that's possible.

Thank you.

sheople2 wrote:OK. I know that using a 3.5% inflation rate that numbers will double in 20 years. If the above is true, doesn't that mean that my 97% success rate is very wrong - given that everyone needs to double their number at the end of the simulation. That would mean that my success rate is actually closer to ZERO. Is that right? I hope not, but it seems to be the case.

As long as you entered the correct inputs, the 97% success rate should be a reasonable indicator of your plan's chance of working out. I don't understand why you think that your success rate is closer to zero? The assumptions you make with your inputs (especially current portfolio size, annual savings, inflation, investment return, and annual retirement spending) are what really determine the outputs.

Also, do you have plans to rework the calc so that it shows all numbers changing and advancing with the rate of inflation? You say above that all calculations take inflation into account, but if the user can't visually see this (numbers are constant and do not change) and they also have to physically double the end result numbers themselves I don't see how that's possible.

I think I'm not explaining this well enough. There shouldn't be any need to double the end result numbers in real life planning. As I said before, projecting out dollar amounts in nominal terms 20 years into the future is meaningless. You can't just shoot at a dollar amount and try to hit it 20 years into the future. That's not an effective way to do this type of planning.

These tools are most effective for making a plan and then tracking your progress toward a goal on a year-to-year basis. The idea is to redo the planning process each year. Assess how things went and do some tuning if needed, and repeat the process year after year. If you keep doing this, you'll know when you're getting close to your goal.

Jim

Jim,

If this is a yearly planner, then why is it developed to project many years into the future?

I think that everyone who uses a Monte Carlo simulator wants to have at least a general idea of what their future "number" might be, so they can plan beyond the following year.

Also, earlier in this post we had a detailed conversation about how the number you end up with would indeed have to be changed - for instance doubled if using the rule of 72 and 3.5% inflation - now you're saying that it is not necessary to adjust any of the numbers once the simulation is complete. I'm afraid I just don't get it.

...And the reason why I said success rate may be zero is that if your calc shows a success percentage to be ie 97% based on a certain ending amount of $293K - that's not really the number one would be shooting for. You'd have to save about double that amount because in reality the number would be closer to $600K.

It's not you Jim. I don't know that I'm being clear.

Also, I've never seen a calc like this which considers the inflation rate that you put in, but then does not advance any of the numbers so you can't see how the inflation affects the numbers.

Sorry. I must be missing something here.

sheople2 wrote:Sorry. I must be missing something here.

I think you might be right that we're not understanding each other. The back-and-forth format of postings to an Internet forum can be a tough way to communicate.

If you'd like, I'd be happy to talk with you on the telephone. I think a two-way communication medium might work better than this. If you think that might be helpful, send an email to me at info@flexibleRetirementPlanner.com and we can set up a time to talk.

Jim

That's very nice of you Jim. I think I'll take you up on that offer once I get a chance.

Thanks again.