•CPI Inflation Rates
Assumed that rates would return from current levels to the historical average (4%) in 3 years.
•Wage Inflation Rates (for Engineers)
Assumed 10% increase next year, based on current year performance assessment, and 5% thereafter. This is based on my past experience.
•Bank Interest Rates
Assumed that yields would return from current levels to the historical average (3%) within 5 years.
•Bond Market Performance
Assumed that yields would return from current levels to the historical average (5%) within 5 years.
•Stock Market Dividends and Capital Gains
Dividends = 2.5% yield
Unrealized Capital Gains = CPI Inflation Rate + 2%
Realized Capital Gains = 0.5% of year-end holdings
You live in a really nice world, and I'd like to live there too, but what relevance does this have to the future?
For example, Dimson & Marsh' "Triumph of the Optimists" claims that annual inflation over 20th century has been about 3%. Inflation over the last 40 years has been about 5%. Inflation last year was lower than either of those other two numbers. Which number are you calling "historical"? More importantly, how do you determine what inflation's going to be for the rest of your life? Are you willing to adjust that assumption for factors like the gold standard, two world wars, the Bretton Woods agreement, a petroleum recession, accounting changes, modern financial engineering, globalization, and computerized trading markets? And what CPI is that fabled government using: CPI-W, CPI-U, or chained CPI? The Wal-Mart effect has impacted CPI over the last 20 years by about 15%-- does that need to be accounted for too?
The reason posters are recommending calculators is so that you can run thousands of simulations of those uncontrollable variables. Then you want to examine the situations where the variables have all turned against you so that you can figure out what you'd have to correct in that situation, and by how much.
cFIRESim is avoiding estimating taxes as much as it's avoiding estimating your electric bill-- everyone has a different one, even when everyone is subject to the same laws. For example you could program federal & state & local tax rates into the software, but I pay very low federal taxes and no state taxes. And what about property taxes or vehicle registration taxes-- should we program all taxes into calculators? So I'd rather add my taxes to my other budget categories and not have the simulator choose it for me.
Pick all the numbers you want, but a decade from now you'll be starting all over again at picking new numbers. Maybe someday you and arebelspy will build the ultimate spreadsheet, but you could also use today's tools to design your life instead of starting all over again at designing your own tools. Perhaps a more productive use of your analysis would be designing a portfolio asset allocation and a couple of different spending levels which would handle a wide variance of the above factors, and then see how sensitive your assets and your plans are to the swings of those factors.
If I was in your position (which I was) then I'd be more focused on estimating my spending and on having a low-cost diversified portfolio of index funds that's not absolutely destroyed by a decade of any one of the above factors. But when I was in your position (in 1987) then I also tried to design a better spreadsheet. The benefit of the design exercise was that it helped me convince myself that I was wasting my time.
Todd Tresidder says it better than I do:
http://financialmentor.com/retirement-planning/early-retirement/smart-alternative/8543http://financialmentor.com/free-articles/retirement-planning/how-much-to-retire/why-retirement-calculators-cant-be-trusted