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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76883  
Subject: Re: Setting retirement goals Date: 12/8/1999 4:25 PM
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Also, when one is doing their planning, don't underestimate inflation. If inflation doesn't stay as low as your 3%, this can really effect everything else. Some financial planning feel it's a good idea to error more on the other end using something like 5%. But that seems too excessive to me too. So I like to encourage people to use something around 4% which is something closer to the average over the last 50+ years.

A better way to treat inflation is to use a number between 1.5% and 10% with an average of 4% over a long period of time. This requires much more calculation, but may expose more risk in some cases. (i.e. if near the start of your retirement, inflation is high for a few years in a row while investment return is low - sort of like part of the early 70's)

I wonder if the financial engines tools use a variable inflation rate as well ?

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