Since I’m getting close to retirement, I like to run estimates with various tweaks (different ages at retirement, part time work after, etc.) on the Ultimate Retirement calculator (yes, I know all about fire stim etc). I like being able to put in different estimates.
Usually I use 3% inflation and estimate for investment growth if 6%, 3% above inflation. Today I tried 2% inflation and 5% investment growth. I thought the outcome would be similar because there’s still a 3% spread between inflation and investment return, but it actually resulted in a $300k excess.
There are three components to my retirement:
-Social security - I’ve been estimating COLA at just 2%. If I reduce that estimate to 1% ( to maintain a 1% spread between actual inflation and SS COLA) I still come out with $130k excess.
- A sizable pension without COLA
- money in retirement accounts
My guess is that the biggest reason for the difference in estimates is that, in a low inflation environment, my pension doesn’t decline in value as quickly. And that therefore experiencing low inflation in the early years of retirement would have a bigger beneficial effect for me than most?