Use inflation or not?

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Last Post by Greg Ashford 3 years ago

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DebiT

(@debit)

Eminent Member Customer

Joined: 3 years ago

Posts: 15

Topic starter November 9, 2023 7:11 pm

I'm new to Pralana, and a recent retiree, but not new to retirement planning software. I've been using the Boglehead's Retiree Portfolio Model for quite a while to decide about Roth conversions, and am intrigued by the similarities and differences in results. Because I'm nitpicky, I decided to do a comparison between RPM and Pralana, and posted about it in the Boglehead forum.

I started with just my portfolio, no income, expenses, taxes or inflation, and proceeded to add back one at a time. I was very gratified that the results for my trial portfolio came out very similar at end of life. The EOL portfolio values continued to be similar between the two, until I added back inflation to both. From what I can determine, the taxable account is growing at a much higher rate in Pralana, and I doubt I will be able to reconcile the two. I am continuing to view results in today's $$. If I switch to future $$, the differences become crazy high, which leads me to assume the RPM is displaying things in today's $$ even when are inflation factors.

So I am now wondering, do most of you use inflation numbers in your planning? My biggest reason for using Pralana is to double check my Roth conversion plan, and that is working great. I would love to be able to trust the future $$ numbers too, and eventually I will compare what I am seeing with my Otar Retirement Planner which is another purchased tool (I think discontinued as of this year). It is very rigorous for testing whether your portfolio will last, using historical data and if I remember correctly, no need for user assumptions about inflation.

Incidentally, I also use a spreadsheet from McClung's "Living Off Your Money", which also emphasizes backtesting to arrive at a model for how much to withdraw every year, and when to sell stock if it's grown to a certain level. All of these tools are very spreadsheet oriented, picky, granular. Since I like those, I already can tell that I am going to like Pralana.

As a newbie, I would love to hear what others are doing as they set up Pralana, especially those in the retirement /decumulation time of life, and especially as regards inflation.

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inflation setup

Greg Ashford

(@earliretca)

New Member Customer

Joined: 3 years ago

Posts: 1

January 13, 2024 6:26 pm

“The EOL portfolio values continued to be similar between the two, until I added back inflation to both. From what I can determine, the taxable account is growing at a much higher rate in Pralana, and I doubt I will be able to reconcile the two.”

In Pralana, the asset class growth rates are specified as real ROR (rate of return). This means the program will add in the inflation rate to come up with the nominal ROR it will use.

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