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Sharing of Inflation Rates, Rates of Return

Last Post by Bill Hines, Advice-Only Flat-F... 3 years ago

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Pizza Man

(@pizzaman)

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Topic starter March 6, 2023 1:58 pm

OK, putting my stake in the ground. Using the results of the PRC survey and reading all the reports posted on the PRC forums, this is what I am inputting into PRC Gold:

Inflation = 3.5%. Long term avg. is 3.27% so I rounded up.

Cash = 0%. PRC Survey result.

Bonds = 2.0%. PRC Survey result.

Stocks = 5.3%. Used PRC historical results starting in 1965.

Health Care Inflation = 4.0%. Avg. from 1990 to present 3.95% so rounded up.

Asset Allocation = 80/15/5. Sticking with US Index stock funds.

All stay the same for entire 30+ years.

Social Security = Drops by 20% in 2035. Not much faith in government right now, hopefully that will change.

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(@nc-cpl)

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March 6, 2023 5:53 pm

@pizzaman very close to what I'm going with too Pizzaman. Is your source for healthcare the YCharts data?

This post was modified 4 years ago by NC

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Pizza Man

(@pizzaman)

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Topic starter March 6, 2023 7:07 pm

No, its from this site: https://www.usinflationcalculator.com/inflation/health-care-inflation-in-the-united-states/

I averaged the December numbers from 1990 to 2022.

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(@nc-cpl)

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March 7, 2023 6:31 am

@pizzaman Curious how many time periods you configure. As we saw in the survey, very few go out 4 or 5. I'm doing 5 presently but rethinking that I'm making things overly complicated. My main reason is to account for portfolio asset mix shift during our 30 years from 65/30/5 to something like 50/40/10 by the end. I also have to account for differences in age with spouse which means our account mix is staggered with hers retaining slightly more risk due to her being 9 years younger (and longer average female lifespan).

This post was modified 4 years ago 2 times by NC

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(@nc-cpl)

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March 7, 2023 6:42 am

@pizzaman The mean of the entire data set (minus last month) is 5.1 (rounded), with a median of 4.3, so I may go with the 4.3

This post was modified 4 years ago by NC

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Pizza Man

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Topic starter March 7, 2023 8:48 am

@nc-cpl Thanks for doing the number crunching, I will use 4.3%.

I use only two time periods mainly because I am doing a lot of financial gymnastics to use Obama Care (ACA) to it's most effective (meaning saving money). That will last about 7 years when we will then both be on Medicare (my wife is four years younger then me). Then just one time period after that. If the future progresses close to historical averages, I realize that my stock allocation will increase with time, but I am OK with that, I like Ketces rising glide slope thinking. As long as I keep 5-7 years of bonds, I am good. We will most likely end up with more money then we started with at end in life, so we will likely give to charity as we go along if we get to rich 🤑.

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Richard Patton

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March 7, 2023 11:43 am

@pizzaman I assume your rate of returns are real after inflation. Correct? My guesses are pretty much smaller all around. Maybe I am too conservative with the rates. My rates: Stocks are 1%, Bonds are -1%, and cash is -1.8%. Maybe I am looking too short term!

I am aggressive in the allocations with 98.5% stocks and 1.5% cash largely due to the fact my wife is 13 year younger and will continue working until 65, giving me a cushion in case the market goes sour for a long period. I don't plan for any withdrawals until RMD kicks in. I will reallocate when she reaches 65.

Any thoughts?

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(@nc-cpl)

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March 7, 2023 1:50 pm

@patton525 With all due respect Rich, if you really think stocks will only produce 1% ROR (which flies in the face of historical performance), why would you want over 98% of your portfolio allocated to such a low growth asset class?

This post was modified 4 years ago by NC

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Bill Hines, Advice-Only Flat-F...

(@hines202)

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March 7, 2023 2:35 pm

@pizzaman and others - be careful when entering healthcare and education inflation. The numbers you enter are RELATIVE to what you put for general inflation. So if you're going with what PizzaMan said, you want to enter as below (my clarification in CAPS). I'm sure @pizzaman already knows this and was inferring it, so just to prevent others from reading it and entering that data verbatim and making a mistake...

Inflation = 3.5%. Long term avg. is 3.27% so I rounded up.

Health Care Inflation = 4.0%. Avg. from 1990 to present 3.95% so rounded up. SO YOU ENTER .5% HERE IN PRALANA, WHICH IS ADDED TO THE 3.5% GENERAL TO GET TO 4% HEALTH CARE INFLATION.

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Richard Patton

(@patton525)

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March 7, 2023 2:45 pm

@nc-cpl Good point for sure, but I am a little timid right now. I realize that I am an outlier here. I can't think of a better return beyond stocks under the circumstances. I may go with higher returns in a different period within PRC.

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(@nc-cpl)

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March 7, 2023 3:25 pm

@patton525 Your returns will be whatever returns turn out to be, that's out of our control, but only giving stocks a 1% ROR would, I believe, seriously "dampen" your projections, produce a much gloomier financial future than is necessary, and undermines PRC's value as a retirement planning tool. Of course you have the freedom to enter any numbers you want, but if you choose to deviate too far from the "historical performance," I think you'll get a pretty negatively skewed picture.

With virtually 100% in stock, I'm assuming you're far away from retirement and willing to tolerate a lot of volatility - is the 1% ROR being used to offset that? That seems like managing the speed of your car by simultaneously putting the pedal to the floor at the same time you're standing on the brake - lol! All the more reason to use "reasonably likely" ROR's

Might be a good use of PRC's ability to model a side-by-side second scenario and use the ROR's that Pizza is using to see what you get in terms of a final net worth, CSS spending, etc. Could be a real "parting of the clouds " moment. Anyway, it's your call...just one man's opinion.

This post was modified 4 years ago 3 times by NC

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Richard Patton

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March 7, 2023 4:57 pm

@nc-cpl Well stated. Your suggestion is exactly what I have done in the other scenarios.

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(@nc-cpl)

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March 7, 2023 7:50 pm

@hines202 So Bill, what are you using for general and inputting for HC inflation?

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(@nc-cpl)

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March 8, 2023 6:51 am

@patton525 don;t keep us in suspense....how did your results differ between the two scenarios?

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Bill Hines, Advice-Only Flat-F...

(@hines202)

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March 8, 2023 7:34 am

@nc-cpl

Y-Charts has the long-term average at 5.2% https://ycharts.com/indicators/us_health_care_inflation_rate

Deloitte says health care costs are rising at a slower pace than general inflation, due to the rise of virtual visits, etc.

https://www2.deloitte.com/us/en/blog/health-care-blog/2023/2023-outlook-for-health-care-and-life-sciences-necessity-is-the-mother-of-invention.html

I do believe costs are dropping, for consumers anyway. Witness the recent legislation and moves to reign in the pharma/healthcare/insurance industry greed and massive profit, i.e. insulin caps, out of pocket caps, and affordable healthcare such as the ACA.

So I'm tacking on another 2% to the Morningstar 2.8% 30-year general inflation outlook, to bring healthcare to 4.8%. Keeping an eye on it.

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