How do you develop your FIRE strategy?

[nara]

We have a reasonably high net worth, no debt other than mortgage, max out all tax advantaged accounts, and are relatively frugal and close to FI, but we have absolutely no idea how to plan for FIRE!

How do you actually come up with your withdrawal strategy? I guess there's a reason why this community is filled with engineers and programmers...but for someone who doesn't use spreadsheets how do you come up with an actual plan especially when there are so many factors to consider such as taxes, unknown health insurance costs, etc.? I'm thinking we'll just have to always work part-time to be on the safe side, but I would love to hear how people actually get to the next phase of planning how to fund their retirement.

[Retire-Canada]

Coles Notes:

1. set FIRE budget [simple way is to use current spending incl taxes and adjust anything obvious that will change with FIRE]
2. save/invest 25x FIRE budget
3. withdraw 4% of initial FIRE portfolio amount adjusted for inflation every year

So if your anticipated FIRE spending incl taxes is $40K/yr you need $40K x 25 = $1M saved/invested to FIRE. The first year you would take out $40K, the second year with 2% inflation you'd take out $40.8K and so on.

Obviously you can get a lot more complex than this, but it's a place to start and then optimise as you see fit.

You can't analyse and predict every possible unknown or risk. So take a guess at it and leave yourself a little wiggle room. Some safety factor is smart, but don't get so carried away with "what ifs?" you double the amount you need due to fear.

Also don't think you can't make adjustments as you go. If your FIRE budget was $40K/yr and you can shift $5K/yr of spending to the future [say buying a new car] during a market crash you've significantly increased your plan's success rate without having to work or suffer or do anything onerous. In most cases your portfolio will keep growing at 4%WR even as you live off it. Doing some easy PT work is a possibility, but you may well not need to and even if you decide you need to it doesn't have to happen ASAP. You have time to think, analyse and take action once you are retired.

[ixtap]

We have a reasonably high net worth, no debt other than mortgage, max out all tax advantaged accounts, and are relatively frugal and close to FI, but we have absolutely no idea how to plan for FIRE!

How do you actually come up with your withdrawal strategy? I guess there's a reason why this community is filled with engineers and programmers...but for someone who doesn't use spreadsheets how do you come up with an actual plan especially when there are so many factors to consider such as taxes, unknown health insurance costs, etc.? I'm thinking we'll just have to always work part-time to be on the safe side, but I would love to hear how people actually get to the next phase of planning how to fund their retirement.

For us, the place to start was with what we want to do when we aren't tied to our jobs. Will you keep your current home? Downsize? Slow travel? Each of these has different costs associated with them.

After that, we just wing it. Healthcare insurance can be estimated with the current system, but it seems likely that without a strong Republican opposition leader, that will be under attack once again in the coming months. Throwing a dart is about the best way of knowing what this will be like 10 years from now.

For taxes, we have strategies in place, rather than concrete numbers. We live a pretty simple lifestyle, leading to low withdrawals to keep us in lower tax brackets. We have also been socking as much as possible away in Roth IRAs and mega backdoor Roth, so we will have access to those funds tax free while the earnings continue to grow.

Then, on top of that, we throw in a safety factor. $100k for home replacement when we switch lifestyles (current boat is less than that, a good RV can be had for less than that, a home in a LCOL will probably be around that), and a 20% buffer for lifestyle inflation.

[Laura33]

Here is my non-spreadsheet lazy-English-major plan, as it currently exists:

1.  Set aside cash for surprise big capital expenses, e.g., a replacement car.

2.  Set up a 3-5 year bond ladder, with individual bonds (not funds), and with each "rung" of the ladder big enough to cover my estimate of one year's expenses. 

3.  Put/keep the rest in VTSAX.

Every year, as the bonds mature, I now have that year's expenses covered, and that money goes into my cash account for my living expenses.  I then cash in a comparable amount (including any inflation, etc.) from VTSAX and buy a new set of bonds to make a new rung at the top of the ladder (so if I have a 3-year ladder, I'd estimate what my expenses will be in 3 years and buy bonds that mature in 3 years; if it's a 5-year ladder, I estimate 5 years out and buy bonds that mature in 5 years).

I like this because if the market crashes, I can simply not replenish the ladder that year and wait until things recover.  That way, I never need to worry about selling when the market is in a trough, and so can invest the rest more aggressively than I could if I felt the need to balance out growth vs. risk.  If you are more risk-averse, you just make the ladder longer (e.g., I think my FIL has a 7-year bond ladder).

[Altons Bobs]

We don't quite have a strategy yet, we'll just decide when that happens. If we were to retire today, our WR will be about 1.7%, so we have a lot of wiggle room. We'll use the dividends first maybe, which will cover about half or a little more than half of our expenses. And then we also have about 3-4 years of expenses set aside, which is not included in the portfolio, for down market. For health insurance, this is the part that keeps us from retiring, that we'll keep working enough to keep our group insurance. Just the dividends already knocked us out of the subsidy, so we can't rely on individual insurance.

[MrThatsDifferent]

I have to agree that there seems to be so much emphasis on getting to FIRE, there is less focus on what to do when you get there. I’ll be in my early 50s when I FIRE, so my plan is to leave my retirement account alone and let it grow, adding as much to it as I can because when that matures, I can take it out tax free. Then I’ll still have some in a regular investment account and just let that grow until I need to access it. Then I was going to have 3-5 years in cash or bonds ad. Live off of that. As much as possible I want to let the money in my accounts remain untouched for 10 years so they can double in value. But honestly, from everything I read, getting the money out to live off is the easiest of the problems. I certainly wouldn’t keep working just because it’s too hard to work out.

[EnjoyIt]

Here is my non-spreadsheet lazy-English-major plan, as it currently exists:

1.  Set aside cash for surprise big capital expenses, e.g., a replacement car.

2.  Set up a 3-5 year bond ladder, with individual bonds (not funds), and with each "rung" of the ladder big enough to cover my estimate of one year's expenses. 

3.  Put/keep the rest in VTSAX.

Every year, as the bonds mature, I now have that year's expenses covered, and that money goes into my cash account for my living expenses.  I then cash in a comparable amount (including any inflation, etc.) from VTSAX and buy a new set of bonds to make a new rung at the top of the ladder (so if I have a 3-year ladder, I'd estimate what my expenses will be in 3 years and buy bonds that mature in 3 years; if it's a 5-year ladder, I estimate 5 years out and buy bonds that mature in 5 years).

I like this because if the market crashes, I can simply not replenish the ladder that year and wait until things recover.  That way, I never need to worry about selling when the market is in a trough, and so can invest the rest more aggressively than I could if I felt the need to balance out growth vs. risk.  If you are more risk-averse, you just make the ladder longer (e.g., I think my FIL has a 7-year bond ladder).

This is exactly our plan with a small change.  Any dividends coming out of the taxable account will be used for expenses to decrease the need to sell appreciated shares and potentially pay taxes.  At the end of the year the plan is to buy and sell out of taxable to minimize taxes such as tax gain or tax loss harvesting depending on the scenario.

I like the individual bond ladder because:
1) I like working with my money and buying several bonds a year will be fun research.
2) Buying individual bonds will increase the return as compared to a bond fund due to lower expense ratios
3) By holding bonds to maturity you don't have to worry about interest rate fluctuations.

[BTDretire]

Here is my non-spreadsheet lazy-English-major plan, as it currently exists:

1.  Set aside cash for surprise big capital expenses, e.g., a replacement car.

2.  Set up a 3-5 year bond ladder, with individual bonds (not funds), and with each "rung" of the ladder big enough to cover my estimate of one year's expenses. 

3.  Put/keep the rest in VTSAX.

Every year, as the bonds mature, I now have that year's expenses covered, and that money goes into my cash account for my living expenses.  I then cash in a comparable amount (including any inflation, etc.) from VTSAX and buy a new set of bonds to make a new rung at the top of the ladder (so if I have a 3-year ladder, I'd estimate what my expenses will be in 3 years and buy bonds that mature in 3 years; if it's a 5-year ladder, I estimate 5 years out and buy bonds that mature in 5 years).

I like this because if the market crashes, I can simply not replenish the ladder that year and wait until things recover.  That way, I never need to worry about selling when the market is in a trough, and so can invest the rest more aggressively than I could if I felt the need to balance out growth vs. risk.  If you are more risk-averse, you just make the ladder longer (e.g., I think my FIL has a 7-year bond ladder).

  That seems like really good way to set up fire.
 It incorporates some bonds in your portfolio, any VTSAX dividends and Cap Gains will be tax free and can be reinvested at full value, (assumes a low tax bracket).
 Let's see, the often looked upon $1,000,000 retirement the first year could be 78.8% stocks and 21.2% bonds or $212,165. That's a happy medium, some want more stock, some less.
Then as years pass and the market does it's average growth your stock percentage would go up, which is not a bad thing, because you have less years to use it. I just realized, I'm coming from a position of being closer to normal retirement age, so that works for me. Although I have seen that (increasing stocks as you age) justified by the fact that you have eliminated some sequence of return risk years.
This going in to my thinking pattern.
Probably best to put this in an IRA to prevent having to pay tax on the dividends each year.
 Any other thoughts on Laura33's method?
My you'll become famous, I just coined it as 'Laura33s Method'  ;-)

[Anette]

Thank you Laura33 for this great advice, I find this really helpful and hadn't thought of that!

[DreamFIRE]

I'm not a spreadsheet expert, but this wasn't too difficult to set up. I made a spreadsheet with my different buckets (rows) of income sources on the left (such as cash, interest income, qualified dividends, Roth, 457B, and long term capital gains.  And I created different columns across for different time ranges during retirement.  I setup formulas to calculate my MAGI and taxes and how much would be left each month for spending after taxes based on what I entered in the individual buckets for each column.  The calculated MAGI number was important before age 65 because I needed to fund FIRE from the correct buckets to keep my MAGI at a level for a decent ACA PCT and CSR to minimize healthcare coverage costs.  So there's a big change at my age 65-69 column because ACA goes away, and my MAGI doubles as I shift my funding more to pre-tax retirement accounts along with SS income, yet my overall spending after taxes doesn't change much.  Tax optimization is also a factor.  I have it calculate everything in 2018 dollars keeping inflation out of the picture.

[sol]

I'm not a spreadsheet expert, but this wasn't too difficult to set up. I made a spreadsheet with my different buckets (rows) of income sources...  I have it calculate everything in 2018 dollars keeping inflation out of the picture.

My spreadsheet is very similar, with a column for the balance in each bucket, and a row for every month between now and age 100.  I take money out of a bucket and add it to my checking account at the required intervals, and each month I take expenses out of my checking account.  This allows me to project the future balances by date in each bucket.

Mine is in actual dollars, though, so that the projections I make today are still valid thirty years from now.  This is easy, you just use the reported returns for each bucket and adjust the dollars to the actual values of each account, and you inflate your expenses each month by a tiny amount.  I've never understood why people use "current" dollars when projecting future expenses, because that guarantees that the numbers in your spreadsheet will be wrong in the future, and you'll just have to back-calculate the inflation back out in order to compare your future bank balances with your old spreadsheet. 

If you wake up one day in 2037 and want to know if you're on track, your spreadsheet full of 2018 dollars is going to be useless.

[Retire-Canada]

If you wake up one day in 2037 and want to know if you're on track, your spreadsheet full of 2018 dollars is going to be useless.

Presumably between 2018 and 2017 you'd update it...at least once per year...that would make "today's" dollars and "2037's" dollar the same thing. Otherwise how do you know in 2018 what inflation will be between now and 2037 to have a spreadsheet that doesn't require editing in 19yrs?

[sol]

how do you know in 2018 what inflation will be between now and 2037 to have a spreadsheet that doesn't require editing in 19yrs?

I don't, but I can put in an assumed long-term average inflation rate that is applied (only) to my monthly expenses.  This way the spreadsheet reports the accurate number of dollars in every account from now into the future (independent of inflation), and in the future in reports the accurate number of dollars from then into the past (also independent of inflation).  The only thing that ever needs to change for inflation is how much money I spend each month, which is a number I'm recording anyway. 

It just seems like a much simpler solution to my way of thinking, but I know lots of people here prefer to do it the other way.

The only complication (and the only reason people deal in current-dollars in the first place) is that you have to mentally let go of your notions of the "value" of a dollar now vs in the future.  A dollar is just a dollar, it doesn't buy any specified amount of stuff, it's just the unit reported in your bank balances.  If we have runaway 10% inflation, those dollars will be worth a whole lot less after a few years but your spreadsheet will still accurately match the numbers on your bank statements.  Your spending will have increased, though.  This means that when I look at my projected expenses for 2050 and see something ridiculous like $8k/month, I just have to accept that this is the amount of money required to support my current standard of living and is not a luxury budget.

Note that cfiresim and firecalc already work the way I do, by default, they just hide that scary $8k/mo future expenses number from you.

[DreamFIRE]

If you wake up one day in 2037 and want to know if you're on track, your spreadsheet full of 2018 dollars is going to be useless.

Presumably between 2018 and 2017 you'd update it...at least once per year...that would make "today's" dollars and "2037's" dollar the same thing. Otherwise how do you know in 2018 what inflation will be between now and 2037 to have a spreadsheet that doesn't require editing in 19yrs?

Exactly.  My spreadsheet won't have 2018 dollars in future years as I'll update it.  That won't be difficult at all.  Your response covers what was already going through my mind as I read sol's response about using future dollars.  It makes a lot more sense to me to use today's dollars than making up future inflated dollars.  But whatever works for someone else...

[sol]

It makes a lot more sense to me to use today's dollars than making up future inflated dollars.  But whatever works for someone else...

I'm not making up future inflated dollars!  They're real dollars!  They are the exact same number of dollars that will be in my real accounts!

But whatever, I've already accepted that I'm a minority on this topic.  Everyone else wants to make a spreadsheet that they know will be wrong in the future, and yet I'm the weirdo on this topic.

[Retire-Canada]

I'm not making up future inflated dollars!  They're real dollars!  They are the exact same number of dollars that will be in my real accounts!

How can you know "the exact real dollars" that will be in your accounts 19 years from now when your withdrawals and spending [in actual real dollars] all depend on inflation? At the start of 2037 when you are transferring money from your investment accounts to you spending account you need to take out your original FIRE spend + inflation between 2018 and 2037. Since you can't know what that will be sitting in 2018 how do you know what the "exact number of dollars" will be in your accounts?

I'd love to understand, but so far I am not getting it.

[whywork]

For me, the FIRE strategy is simple; Historically 4% has shown to be a safe WR. And 3.29% WR historically has been proved that your money will never be lost. So simply aim for that; aim for NW of roughly 30 times your annual expenses.

Put them in VTSAX and withdraw monthly as necessary by selling. Simple.

[PhilB]

It makes a lot more sense to me to use today's dollars than making up future inflated dollars.  But whatever works for someone else...

I'm not making up future inflated dollars!  They're real dollars!  They are the exact same number of dollars that will be in my real accounts!

But whatever, I've already accepted that I'm a minority on this topic.  Everyone else wants to make a spreadsheet that they know will be wrong in the future, and yet I'm the weirdo on this topic.

I think there are two basic problems with a 'real dollars' approach over a current one.  The first is that it is incredibly hard to get a handle on what those future numbers mean and therefore to spot mistakes.  The second is that it won't really help you much in the future as you won't be able to see which variances are down to returns/spending variances vs which are down to inflation being different than your estimate.  To avoid this second problem you would need to replace budgeted with actual inflation each year - in which case you might as well have been doing this on a current dollar model in the first place.

My 'current dollar' models all have a cell each year for the actual inflation percentage.  It's an annual task to just plug that number in so that eg all your 2017 dollars then become 2018 dollars in all future period data. 

The one case where 'future dollars' might be better is if a lot of numbers in your projection are actually fixed eg mortgage repayments or a level annuity.  In that case it may be easier to use future dollars than decrease these fixed sums for assumed inflation each year - but most of us would still have the problem of needing to convert back to current dollars to really understand what the numbers mean.

[sol]

it is incredibly hard to get a handle on what those future numbers mean

I don't find it hard at all.  They mean dollars.  Actual, literal, dollars.

It's the "current dollars" approach that confuses me, because you're tying everything some nebulous expectation of "value" instead of a discrete hard number that everyone can agree on, but that's fine.  You can do it your way and I'll do it mine. 

How can you know "the exact real dollars" that will be in your accounts 19 years from now when your withdrawals and spending [in actual real dollars] all depend on inflation? At the start of 2037 when you are transferring money from your investment accounts to you spending account you need to take out your original FIRE spend + inflation between 2018 and 2037. Since you can't know what that will be sitting in 2018 how do you know what the "exact number of dollars" will be in your accounts?

I find my way easier because it only requires a single column of numbers (expenses) to be based on inflation, and this makes sense to me because I expect to have to spend more dollars in the future than I spend today.  Your approach, by contrast, ties everything to this moment's value of a dollar and requires every other column in your spreadsheet to be converted into literal dollars in the future, because it will always be expressed as some other amount than what's actually in your account, based on its relative purchasing power to a long-gone date.

I get to use nominal returns, which are the total amount of money returned by an investment and what every financial institution reports.  You have to use each year's real return, which is adjusted for recent inflation and is something less than the total amount of dollars you get back, in an attempt to preserve some arbitrary sense of relative purchasing power.  If you just abandon the notion that goods "should" cost a specified number of dollars, and assume that milk will cost $5/gallon in the future and that's totally normal and expected, then real returns suddenly seem unnecessarily complicated.  The only hard part, as philb pointed out, is that lots of (less financially literate people who are not mmm forum members) have a hard time mentally accepting that poor people in the year 2100 are going to be spending $100k/yr and are still going to be poor, because $100k will not be nearly as valuable in the future as it is today.  It will, however, still be written as $100,000 on a bank statement and as $100,000 in my spreadsheet.

[Retire-Canada]

I find my way easier because it only requires a single column of numbers (expenses) to be based on inflation, and this makes sense to me because I expect to have to spend more dollars in the future than I spend today.  Your approach, by contrast, ties everything to this moment's value of a dollar and requires every other column in your spreadsheet to be converted into literal dollars in the future, because it will always be expressed as some other amount than what's actually in your account, based on its relative purchasing power to a long-gone date.

I don't think you understand what we are proposing based on your comment above. In 2018 our spreadsheet will be in 2018 dollars all the way through to the end of the projection. In 2019, 2020...2037 our spreadsheets will all be in the dollars of that year not some long gone date. They will always be in the current dollars. Given that the only time you need to worry about withdrawing and spending dollars is actually in the present that seems to make a lot of sense. Sitting in 2018 and looking at the 2037 column today and seeing those values in 2018 dollars also makes a lot of sense.

You seem to be under the impression that a FIRE spreadsheet built in 2018 stays in 2018 dollars until we die. That's not the case. It will be updated for actual returns and actual withdrawals [based on actual inflation]...in most cases annually. It would literally take 5 mins to make the update on 1 Jan and then all the values would be adjust into the current dollars. That seems pretty simple.

[PhilB]

it is incredibly hard to get a handle on what those future numbers mean

I don't find it hard at all.  They mean dollars.  Actual, literal, dollars.

It's the "current dollars" approach that confuses me, because you're tying everything some nebulous expectation of "value" instead of a discrete hard number that everyone can agree on, but that's fine.  You can do it your way and I'll do it mine. 

How can you know "the exact real dollars" that will be in your accounts 19 years from now when your withdrawals and spending [in actual real dollars] all depend on inflation? At the start of 2037 when you are transferring money from your investment accounts to you spending account you need to take out your original FIRE spend + inflation between 2018 and 2037. Since you can't know what that will be sitting in 2018 how do you know what the "exact number of dollars" will be in your accounts?

I find my way easier because it only requires a single column of numbers (expenses) to be based on inflation, and this makes sense to me because I expect to have to spend more dollars in the future than I spend today.  Your approach, by contrast, ties everything to this moment's value of a dollar and requires every other column in your spreadsheet to be converted into literal dollars in the future, because it will always be expressed as some other amount than what's actually in your account, based on its relative purchasing power to a long-gone date.

I get to use nominal returns, which are the total amount of money returned by an investment and what every financial institution reports.  You have to use each year's real return, which is adjusted for recent inflation and is something less than the total amount of dollars you get back, in an attempt to preserve some arbitrary sense of relative purchasing power.  If you just abandon the notion that goods "should" cost a specified number of dollars, and assume that milk will cost $5/gallon in the future and that's totally normal and expected, then real returns suddenly seem unnecessarily complicated.  The only hard part, as philb pointed out, is that lots of (less financially literate people who are not mmm forum members) have a hard time mentally accepting that poor people in the year 2100 are going to be spending $100k/yr and are still going to be poor, because $100k will not be nearly as valuable in the future as it is today.  It will, however, still be written as $100,000 on a bank statement and as $100,000 in my spreadsheet.

I think a lot of this comes down to whether you are thinking of the spreadsheet as a report card to be checked against in the future (real always better) or a predictive tool to help you make decisions now.  In the latter case I would really struggle to get a grasp on what it would mean to have eg a new income stream coming on line in 30 years time that will give me an extra $500 a year.  Personally I have no real feeling at all for what $500 real dollars in 30 years time would buy me and wouldn't be able to make any sensible decisions on how big an impact it would be without first converting back to current dollars.  If you have trained yourself to have a good feeling for what $500 means in 10, 20, 30 years time and all relevant periods in between then I take my hat of to you sir, and respectfully point out that you are something of an outlier in that ability.

[sol]

Personally I have no real feeling at all for what $500 real dollars in 30 years time would buy me and wouldn't be able to make any sensible decisions on how big an impact it would be without first converting back to current dollars. 

I guess I don't feel any need to have a "feel" for what $500 means in the future, because my spreadsheet has a column for expenses each month, in dollars, that need to be met with the same number of dollars from other accounts.  How I "feel" about it doesn't seem to matter, as long as my math works out.

[Retire-Canada]

I think a lot of this comes down to whether you are thinking of the spreadsheet as a report card to be checked against in the future (real always better) or a predictive tool to help you make decisions now.  In the latter case I would really struggle to get a grasp on what it would mean to have eg a new income stream coming on line in 30 years time that will give me an extra $500 a year.  Personally I have no real feeling at all for what $500 real dollars in 30 years time would buy me and wouldn't be able to make any sensible decisions on how big an impact it would be without first converting back to current dollars.  If you have trained yourself to have a good feeling for what $500 means in 10, 20, 30 years time and all relevant periods in between then I take my hat of to you sir, and respectfully point out that you are something of an outlier in that ability.

How would you know that your income stream would be $500 20 or 30 years out? I have some pension $$ coming to me in 15 and then 20yrs, but they are indexed to inflation so I know their value in 2018 dollars, but in 15 or 20 years inflation could have been huge or could remain low. So I don't see how I could enter a number for that income in 2018 that would be the exact amount I would end up receiving in 15 or 20 years?

Perhaps I am missing something.

[PhilB]

I find my way easier because it only requires a single column of numbers (expenses) to be based on inflation, and this makes sense to me because I expect to have to spend more dollars in the future than I spend today.  Your approach, by contrast, ties everything to this moment's value of a dollar and requires every other column in your spreadsheet to be converted into literal dollars in the future, because it will always be expressed as some other amount than what's actually in your account, based on its relative purchasing power to a long-gone date.

I don't think you understand what we are proposing based on your comment above. In 2018 our spreadsheet will be in 2018 dollars all the way through to the end of the projection. In 2019, 2020...2037 our spreadsheets will all be in the dollars of that year not some long gone date. They will always be in the current dollars. Given that the only time you need to worry about withdrawing and spending dollars is actually in the present that seems to make a lot of sense. Sitting in 2018 and looking at the 2037 column today and seeing those values in 2018 dollars also makes a lot of sense.

You seem to be under the impression that a FIRE spreadsheet built in 2018 stays in 2018 dollars until we die. That's not the case. It will be updated for actual returns and actual withdrawals [based on actual inflation]...in most cases annually. It would literally take 5 mins to make the update on 1 Jan and then all the values would be adjust into the current dollars. That seems pretty simple.

Exactly this.  Every year on the spreadsheet ends up in actual dollars as you go along.  Future numbers are always current dollars at the date you are using the spreadsheet for ease of understanding.

[Dances With Fire]

Coles Notes:

1. set FIRE budget [simple way is to use current spending incl taxes and adjust anything obvious that will change with FIRE]
2. save/invest 25x FIRE budget
3. withdraw 4% of initial FIRE portfolio amount adjusted for inflation every year

So if your anticipated FIRE spending incl taxes is $40K/yr you need $40K x 25 = $1M saved/invested to FIRE. The first year you would take out $40K, the second year with 2% inflation you'd take out $40.8K and so on.

Obviously you can get a lot more complex than this, but it's a place to start and then optimise as you see fit.

You can't analyse and predict every possible unknown or risk. So take a guess at it and leave yourself a little wiggle room. Some safety factor is smart, but don't get so carried away with "what ifs?" you double the amount you need due to fear.

Also don't think you can't make adjustments as you go. If your FIRE budget was $40K/yr and you can shift $5K/yr of spending to the future [say buying a new car] during a market crash you've significantly increased your plan's success rate without having to work or suffer or do anything onerous. In most cases your portfolio will keep growing at 4%WR even as you live off it. Doing some easy PT work is a possibility, but you may well not need to and even if you decide you need to it doesn't have to happen ASAP. You have time to think, analyse and take action once you are retired.

^^^ +1  OP, this is our plan as well. Try to keep it as simple as possible.

A couple of thoughts:

If you haven't already, track your spending including taxes etc. (For years I did this with nothing more than a legal pad and pen.) A monthly planner works well also.

If the markets get rough, I believe (most) people on this forum can and will adjust their lifestyle to some degree. For the most part, we are frugal by nature, savers, investors, and planners. Also part-time work is an option for many if needed. Having a good solid plan is key.

[PhilB]

I think a lot of this comes down to whether you are thinking of the spreadsheet as a report card to be checked against in the future (real always better) or a predictive tool to help you make decisions now.  In the latter case I would really struggle to get a grasp on what it would mean to have eg a new income stream coming on line in 30 years time that will give me an extra $500 a year.  Personally I have no real feeling at all for what $500 real dollars in 30 years time would buy me and wouldn't be able to make any sensible decisions on how big an impact it would be without first converting back to current dollars.  If you have trained yourself to have a good feeling for what $500 means in 10, 20, 30 years time and all relevant periods in between then I take my hat of to you sir, and respectfully point out that you are something of an outlier in that ability.

How would you know that your income stream would be $500 20 or 30 years out? I have some pension $$ coming to me in 15 and then 20yrs, but they are indexed to inflation so I know their value in 2018 dollars, but in 15 or 20 years inflation could have been huge or could remain low. So I don't see how I could enter a number for that income in 2018 that would be the exact amount I would end up receiving in 15 or 20 years?

Perhaps I am missing something.

That's kind of the point.  With Sol's route you would have to inflate your pension for assumed inflation before putting it into the spreadsheet.  In that case you have a clear handle though because you knew what it was before you inflated it :@)
A better example might be your mortgage payment finishing in 20 years time as there you know the real amount, but can't really imagine what the impact will be until you convert back to current dollars.

[DreamFIRE]

It makes a lot more sense to me to use today's dollars than making up future inflated dollars.  But whatever works for someone else...

I'm not making up future inflated dollars!  They're real dollars!  They are the exact same number of dollars that will be in my real accounts!

But whatever, I've already accepted that I'm a minority on this topic.  Everyone else wants to make a spreadsheet that they know will be wrong in the future, and yet I'm the weirdo on this topic.

Personally I have no real feeling at all for what $500 real dollars in 30 years time would buy me and wouldn't be able to make any sensible decisions on how big an impact it would be without first converting back to current dollars.  If you have trained yourself to have a good feeling for what $500 means in 10, 20, 30 years time and all relevant periods in between then I take my hat of to you sir, and respectfully point out that you are something of an outlier in that ability.

Even more impressive is that he somehow knows exactly what inflation will be over 30+ years, along with his long term expenses, future tax laws, healthcare changes, etc. as to know the "exact number of dollars" he will have in his accounts then.

[PiobStache]

Folks do realize that the suppressed assumption here is that the "inflation rate" is a correct and applicable figure?  For instance, the basket of goods the CPI is based around might be weighted with goods the average RE person utilizes at a far lower rate.  Gas, automobiles, clothing...think of how hard FIRE folks suppress these purchases vs. the average consumer.  On the flip side many RE folks are going to have to pay for insurance costs out of pocket.  The inflation rate for insurance and medical services is hugely different than the CPI.

I totally get modeling, and a so/so model is way better than no model, but I like to examine major assumptions in models I build.  Just a thought for folks doing their spreadsheets.

[x02947]

Sol, you've gone and confused me.  Which tends to happen when I learn new things.  Which is what I'm doing now, as I've been blithely throwing money in my retirement accounts until I stumbled across MMM not too long ago.  If this needs to be brought up in a new thread (or is already explained elsewhere), please point me in that direction. 

I totally get why you use real instead of current dollars.  I've been using the current dollar method.  For my investment account columns, I show them appreciating by 7% each year (to model the 10% nominal returns reduced by 3% average inflation).  I suppose I should technically show lower then that as I do have bonds, but that's for a different day.  Based on

I get to use nominal returns, which are the total amount of money returned by an investment and what every financial institution reports.  You have to use each year's real return, which is adjusted for recent inflation and is something less than the total amount of dollars you get back, in an attempt to preserve some arbitrary sense of relative purchasing power. 

it sounds to me like you look at the historical returns of your funds and use those to project forward instead the 7%.  When I look at a year's real return, I'm looking *back* at the performance, not projecting the growth. I thought the whole guiding principle was you can't beat/time the market, so just use an index fund and assume 7% real returns (or 10%, in your case)?  Or have I just exposed my naivety to the wider world?  (Obviously I would still look at the previous returns in the future to make sure the fund is indeed behaving correctly).

[koshtra]

Sol makes me very happy.

I would advise the original poster not to pay attention to this, though, and just do what Laura33 says :-)

[moof]

...
I get to use nominal returns, which are the total amount of money returned by an investment and what every financial institution reports.  You have to use each year's real return, which is adjusted for recent inflation and is something less than the total amount of dollars you get back, in an attempt to preserve some arbitrary sense of relative purchasing power.  If you just abandon the notion that goods "should" cost a specified number of dollars, and assume that milk will cost $5/gallon in the future and that's totally normal and expected, then real returns suddenly seem unnecessarily complicated.  The only hard part, as philb pointed out, is that lots of (less financially literate people who are not mmm forum members) have a hard time mentally accepting that poor people in the year 2100 are going to be spending $100k/yr and are still going to be poor, because $100k will not be nearly as valuable in the future as it is today.  It will, however, still be written as $100,000 on a bank statement and as $100,000 in my spreadsheet.

No actual issues with your approach, it is just as valid as the other way.  I started down this path and abandoned.

Nominal growth and inflation growth are correlated to an extent (i.e. you bought an asset, which will generally grow with inflation, plus other factors on top).  So if you want some similar buying power in the future (comparable rent, food, clothes, etc), and are using historical growth/inflation data to suss things out, you need to keep both portfolio growth AND target withdrawals as two moving targets.  $100k in future nominal dollars can be luxury income, or starvation level living depending on which era of inflation you are looking at.  Success then is much harder to confidently identify.  Factoring out inflation, I've found anyway, makes things come into focus much more readily.

YMMV

[sol]

If this needs to be brought up in a new thread (or is already explained elsewhere), please point me in that direction. 

It doesn't.  Both ways are totally valid.  Do whatever makes sense to you, just make sure you're being consistent with your approach.

[EnjoyIt]

Back before spreadsheets people retired just fine.  They had a pension and some savings and lived off of that.  When times were tough they spent less.  When times where good they spent more.  People on this forum are pretty good at adjusting spending based on available resources. 

Don't make this too complex.  Save 25x expenses including taxes if you will be taxed at all and then feel free to retire spending that amount.  Just because inflation is 3% does not mean you will need to spend 3% more.  Your expenses may not increase that much.  When times are tough decrease spending a little which you will likely do anyway because you are a human with a brain and emotions.  Every few years see where you stand and adjust as need be. 

It is physically impossible to predict spending and inflation down to the dollar over your lifetime and you simply have no reason to do so.

[x02947]

If this needs to be brought up in a new thread (or is already explained elsewhere), please point me in that direction. 

It doesn't.  Both ways are totally valid.  Do whatever makes sense to you, just make sure you're being consistent with your approach.

Sorry, I was nervous due to my newness and therefore verbose and unclear.

Do you refer to the fact that at the end of the year, my generic spreadsheet will show an increase of 7% for my investments, while my bank account will show an increase of 10%?  I originally thought you meant that you look at the nominal returns of your investments and base your projections off that, instead of 10%, but I think I was wrong.

[SwordGuy]

Back to the OP's original question.   If I've misunderstood, I apologize:

1) You say you don't use spreadsheets.   

Facepunch time:  Go learn how.  Books are cheap or free.   Continuing education classes are cheap or free.   I'm sure there are tutorials on line.    Don't use excuses.


Or, use pencil and paper.  In fact, I suggest you start with pencil and paper, find something simple that helps you understand your finances, then -- if it's too much work to keep it up to date by hand -- learn how to use a spreadsheet.  Simple spreadsheets aren't very hard to do if you have a paper version of what you want already done.


2) Your pre-FIRE and post-FIRE plans will be based on income and expenses.   That's it.
  Your current expenses are learnable.  Just track them.   For your FIRE plans, ask yourself what you expect to change.   Need two cars now but only one once you're FIRED?   Commuting and business clothing expenses going down?   Moving to a new location and a cheaper (or - gasp! - more expensive) place to live?   Make your best guesses.   There are lots of websites out there that have useful data for you to use in helping decide on what those changed costs will be.


Health care costs are also predictable in the short term.   Shop around and find out what it will cost.  Go to the ACA pages and find out.    You can check this each year and update your numbers accordingly as you move towards FIRE.   


Taxes are learnable.   The rules are known and you can find out what they will be for any given set of income and expenses.  Learn how.


And yes, that will be a lot of learning.   Embrace it.  It will set you free!


3) Your current income is known.  Future pre-FIRE income can be estimated based on what you know about your current income.    Your post-FIRE income can be estimated based on the source of that income.    Again, you'll need to know what the general expectations for each of your income types is.    More learning.

If you have specific questions about what you read, ask them.   Right now, your current question seems to me to be "Tell me all the info on this website and its forum."   For that, just start reading. :)

[nara]

Back to the OP's original question.   If I've misunderstood, I apologize:

1) You say you don't use spreadsheets.   

Facepunch time:  Go learn how.  Books are cheap or free.   Continuing education classes are cheap or free.   I'm sure there are tutorials on line.    Don't use excuses.


Or, use pencil and paper.  In fact, I suggest you start with pencil and paper, find something simple that helps you understand your finances, then -- if it's too much work to keep it up to date by hand -- learn how to use a spreadsheet.  Simple spreadsheets aren't very hard to do if you have a paper version of what you want already done.


2) Your pre-FIRE and post-FIRE plans will be based on income and expenses.   That's it.
  Your current expenses are learnable.  Just track them.   For your FIRE plans, ask yourself what you expect to change.   Need two cars now but only one once you're FIRED?   Commuting and business clothing expenses going down?   Moving to a new location and a cheaper (or - gasp! - more expensive) place to live?   Make your best guesses.   There are lots of websites out there that have useful data for you to use in helping decide on what those changed costs will be.


Health care costs are also predictable in the short term.   Shop around and find out what it will cost.  Go to the ACA pages and find out.    You can check this each year and update your numbers accordingly as you move towards FIRE.   


Taxes are learnable.   The rules are known and you can find out what they will be for any given set of income and expenses.  Learn how.


And yes, that will be a lot of learning.   Embrace it.  It will set you free!


3) Your current income is known.  Future pre-FIRE income can be estimated based on what you know about your current income.    Your post-FIRE income can be estimated based on the source of that income.    Again, you'll need to know what the general expectations for each of your income types is.    More learning.

If you have specific questions about what you read, ask them.   Right now, your current question seems to me to be "Tell me all the info on this website and its forum."   For that, just start reading. :)

I am okay with spreadsheets I am just not sure what I am doing with them. I can add and subtract, but I am not sure how to use the detailed calculations that a lot of the users here mention doing. I have read through MMM's entire site and many others so I don't believe I am not educated about FIRE and am looking for shortcuts... but I am just unsure of how to apply what I've learnt to our particular situation. Some say portfolio assets should cover expenses, some say backdoor roths, some say 401K withdrawals with 10% penalty. I think the fact that I have read to much is actually leading to so much confusion! I guess at this point I am just not sure what investing buckets I should be focusing on because I don't have an actual strategy other than 25x expenses.

[PhilB]

Back to the OP's original question.   If I've misunderstood, I apologize:

1) You say you don't use spreadsheets.   

Facepunch time:  Go learn how.  Books are cheap or free.   Continuing education classes are cheap or free.   I'm sure there are tutorials on line.    Don't use excuses.


Or, use pencil and paper.  In fact, I suggest you start with pencil and paper, find something simple that helps you understand your finances, then -- if it's too much work to keep it up to date by hand -- learn how to use a spreadsheet.  Simple spreadsheets aren't very hard to do if you have a paper version of what you want already done.


2) Your pre-FIRE and post-FIRE plans will be based on income and expenses.   That's it.
  Your current expenses are learnable.  Just track them.   For your FIRE plans, ask yourself what you expect to change.   Need two cars now but only one once you're FIRED?   Commuting and business clothing expenses going down?   Moving to a new location and a cheaper (or - gasp! - more expensive) place to live?   Make your best guesses.   There are lots of websites out there that have useful data for you to use in helping decide on what those changed costs will be.


Health care costs are also predictable in the short term.   Shop around and find out what it will cost.  Go to the ACA pages and find out.    You can check this each year and update your numbers accordingly as you move towards FIRE.   


Taxes are learnable.   The rules are known and you can find out what they will be for any given set of income and expenses.  Learn how.


And yes, that will be a lot of learning.   Embrace it.  It will set you free!


3) Your current income is known.  Future pre-FIRE income can be estimated based on what you know about your current income.    Your post-FIRE income can be estimated based on the source of that income.    Again, you'll need to know what the general expectations for each of your income types is.    More learning.

If you have specific questions about what you read, ask them.   Right now, your current question seems to me to be "Tell me all the info on this website and its forum."   For that, just start reading. :)

I am okay with spreadsheets I am just not sure what I am doing with them. I can add and subtract, but I am not sure how to use the detailed calculations that a lot of the users here mention doing. I have read through MMM's entire site and many others so I don't believe I am not educated about FIRE and am looking for shortcuts... but I am just unsure of how to apply what I've learnt to our particular situation. Some say portfolio assets should cover expenses, some say backdoor roths, some say 401K withdrawals with 10% penalty. I think the fact that I have read to much is actually leading to so much confusion! I guess at this point I am just not sure what investing buckets I should be focusing on because I don't have an actual strategy other than 25x expenses.

I'm afraid you are going to need quite a big spreadsheet for this next bit.  None of the individual bits is complicated, but there might be a lot of them.  The name of the game is to get the most tax efficient route possible that allows you the amount of cashflow you need in each and every year of your retirement.  The simplest approach to this is one column per year in which you work out the budgeted opening balance, investment income, withdrawals and closing balance for each pot of money. copying the withdrawal number down to the bottom of the column.  Add them all up, deduct any tax and the number you are left with is your income.  Closing balances from one year become opening balances for the next.  The trick is to juggle the withdrawals to take the right amounts from the right pots so that a) you abide by the rules on when they can be accessed, and b) you minimise that tax number.

[Laura33]

I am okay with spreadsheets I am just not sure what I am doing with them. I can add and subtract, but I am not sure how to use the detailed calculations that a lot of the users here mention doing. I have read through MMM's entire site and many others so I don't believe I am not educated about FIRE and am looking for shortcuts... but I am just unsure of how to apply what I've learnt to our particular situation. Some say portfolio assets should cover expenses, some say backdoor roths, some say 401K withdrawals with 10% penalty. I think the fact that I have read to much is actually leading to so much confusion! I guess at this point I am just not sure what investing buckets I should be focusing on because I don't have an actual strategy other than 25x expenses.

The real problem is that you are conflating multiple different concepts together.  "Portfolio assets should cover expenses" is the end goal:  you want to save enough that a 4% withdrawal rate will cover your expenses (i.e., 25x your estimated retirement expenses).  Backdoor Roths are a tool you can use to get money in a tax-sheltered account if you don't qualify for a traditional IRA.  And a 401(k) withdrawal with the 10% penalty is a tool you can use to take your money out of your 401(k) before you turn 59 1/2.  See how different those things are?  Same with the general reference to "spreadsheets":  Spreadsheets themselves are just a tool that can be used for many different things, from budgeting to projecting future income/returns to tracking expenses, etc.; you can know how to work Excel and still not track how some of the detailed analyses people use here work (ask me how I know!). 

Don't let the perfect be the enemy of the good.  Your number one goal right now is to build up your assets as fast as you can.  That means two things:  (1) saving/investing as much money as you can; and (2) keeping the costs down on those investments.  (1) is self-evident.  (2) is just limiting the drains on (1).  And there are two primary sources of those drains.  First is the tax man:  when you invest in a regular account, you are putting in dollars after taxes, which means you have fewer dollars to invest in the first place, plus Uncle Sam takes a cut of your earnings every year.  So the solution to that is to put as much into tax-sheltered accounts as possible, starting with prioritizing the accounts that get you the most tax breaks.  So for the vast majority of people, that means (a) HSAs (don't pay taxes on money you put in initially AND money grows tax-free AND it is tax-free to take it out if you use it on medical expenses = 3 tax breaks!); then (b) 401(k)/IRA (don't pay taxes on money you put in initially AND money grows tax-free = 2 tax breaks); then (c) Roth 401(k)/Roth IRA (money grows tax-free AND you don't pay money when you take it out = also 2 tax breaks, but usually not as advantagious as (b) because you are usually taking money out in a lower tax bracket than when you put it in). 

The other drain is investment costs, i.e., the fees you pay on your investments.  This is why people here tend to prefer Vanguard/Fidelity, and prefer index funds or ETFs:  you don't have to pay an adviser or broker to invest, they have wicked low management fees, and they don't rack up a lot of extra costs by trading frequently to try to beat the market (which no one really does long-term).  This is where people have to debate whether to prioritize 401(k) or IRA:  some 401(k)s don't offer a great mix of funds, so if you are stuck with high-fee accounts, you want to prioritize your IRA.  OTOH, some 401(k)s offer matching funds, which are basically free money, so unless your 401(k) is truly horrendous, you want to at least put money in up to the match before diverting savings to your IRA.

And that's it.  Dump a metric shit-ton of money into your HSA, 401(k)s, and IRAs, focusing on the lowest-cost broad-market options they have, and then save extra in a taxable account if you need to to hit your target.  No spreadsheets even required.* 

But wait, you say -- what about all of the other stuff, like rolling over my IRA into a Roth, or the 401(k) 10% penalty thing, etc. etc. etc.?  Don't worry about it!!  Those are things that matter when you need to access the money -- so if you are more than 5 years away from needing the money, you have plenty of time to read and learn more before you get there!  So again, don't let the perfect be the enemy of the good:  focus on the wealth-building for now, and trust that you are smart enough to learn all about tax-favored withdrawal strategies by the time you get there. 

*FWIW, I can barely even use Excel and have no interest in learning.  If I want to project what my investments will be in however many years, I just use one of the gazillion internet sites that will do the math for me.  No, it is not precise, but neither is life, so it serves my needs just fine.

[wageslave23]

My two cents is that I agree with Sol.  The reason I converted to actual dollars is because using real returns doesn't take into account the decreasing real value of your fixed loans.  To be consistent you would have to lower the value of your outstanding loans by about 2-3% every year in relation to your assets to account for paying them back with inflated dollars.  Which is fine but seems more intuitive to keep them the same dollar amount since that is what you will actually owe according to the loan amortization. 

[DreamFIRE]

Which is fine but seems more intuitive to keep them the same dollar amount since that is what you will actually owe according to the loan amortization.

Except then, all your other future numbers are made up since you don't know what future inflation will be each year or that it will even be in the full 2 to 3% range that you mentioned.

I don't carry loans now and won't carry any into FIRE, so that's a non-issue for me.  I calculate everything on my spreadhseet into current year's dollars and will make the minor tweaks year to year to deal with the previous year's  inflation or other changes as needed.

[sol]

Except then, all your other future numbers are made up

You don't need to know the exact future numbers in order to make estimations.  You don't know your exact future return/inflation numbers either, and then you're deliberately making them wrong on top of that. 

Which, again, is fine with me.  You should do it whatever way makes sense to you.

[Paul der Krake]

I have rough estimates. The rest I will make up as I go. Flexibility is key.

[DreamFIRE]

Except then, all your other future numbers are made up

You don't need to know the exact future numbers in order to make estimations.  You don't know your exact future return/inflation numbers either, and then you're deliberately making them wrong on top of that. 

Which, again, is fine with me.  You should do it whatever way makes sense to you.

I prefer not to make estimations when I don't need to.  Knowing exact future returns isn't important either in my spreadsheet.  I already have enough stash, so my budget and drawdown is based on a SWR% that cFireSim gives 100% success.

I'm not trying to talk anyone out of your method.  I responded to the previous poster because it seemed ironic to adjust inflation because of a single budget item on a loan while then throwing off all the other numbers.

[sol]

I responded to the previous poster because it seemed ironic to adjust inflation because of a single budget item on a loan while then throwing off all the other numbers.

From my perspective, my approach tracks the correct number of dollars in every account, and it's your "value of a dollar" approach that is throwing off all of the other numbers.

[wageslave23]

Except then, all your other future numbers are made up

You don't need to know the exact future numbers in order to make estimations.  You don't know your exact future return/inflation numbers either, and then you're deliberately making them wrong on top of that. 

Which, again, is fine with me.  You should do it whatever way makes sense to you.

I prefer not to make estimations when I don't need to.  Knowing exact future returns isn't important either in my spreadsheet.  I already have enough stash, so my budget and drawdown is based on a SWR% that cFireSim gives 100% success.

I'm not trying to talk anyone out of your method.  I responded to the previous poster because it seemed ironic to adjust inflation because of a single budget item on a loan while then throwing off all the other numbers.

You can do whatever you want, but I create budgets and projections for a living and that is how 99% of the business world creates projections.  Inflation is a fact, and in the US very predictable.  You can either assume 0 inflation and use real dollars or use the historical trend of 2-3%.  Just like you can assume 0% real returns because you're not sure what the actual return will be or use 6-7% real return based on historical numbers.

[DreamFIRE]

Except then, all your other future numbers are made up

You don't need to know the exact future numbers in order to make estimations.  You don't know your exact future return/inflation numbers either, and then you're deliberately making them wrong on top of that. 

Which, again, is fine with me.  You should do it whatever way makes sense to you.

I prefer not to make estimations when I don't need to.  Knowing exact future returns isn't important either in my spreadsheet.  I already have enough stash, so my budget and drawdown is based on a SWR% that cFireSim gives 100% success.

I'm not trying to talk anyone out of your method.  I responded to the previous poster because it seemed ironic to adjust inflation because of a single budget item on a loan while then throwing off all the other numbers.

Inflation is a fact, and in the US very predictable.  You can either assume 0 inflation and use real dollars or use the historical trend of 2-3%.

Actually, as mentioned earlier, inflation is NOT predictable as to make your "future" dollars accurate.  Also, you are making the mistake about the choice to be made.  The "real" dollars you are stating are actually just "estimated" dollars, 2-3% is a range, not a specific amount reflecting the inflation of each future year, and inflation can be much higher than that in any particular year(s), as can be seen historically.  And in my case, I am not "assuming" 0 inflation.  You missed the point completely if you thought that was the choice I made.  I simply use the current year's dollars, so it doesn't matter what future inflation is, and then I take a moment to update my spreadsheet based on what inflation was at the end of the year, so my numbers are exactly right at the beginning of the next year, never making assumptions about future inflation.  So, inflation isn't "made up" nor is it "assumed to be 0".  As long as it's understood they are in "today's dollars," they are accurate.  This is the same way the ssa.gov will show your future SS benefits by default.  If you check ssa.gov next year, they will be in next year's dollars.

Just like you can assume 0% real returns because you're not sure what the actual return will be or use 6-7% real return based on historical numbers.

As stated, I'm not assuming 0% inflation - that was your misunderstanding.  Regarding returns, actually, that would be a mistake to assume 6-7% returns over the short term.  Even in 10 years, they could be much higher or much less, even more so in any given year of your spreadsheet.  Not long ago, the S&P 500 went over 12 years with a net negative real return, including reinvested dividends.  My spreadsheet doesn't try to predict future gains, nor does it assume 0%.  I base my SWR% off an amount that cFiReSim gives 100% success rather than trying to predict what future returns will be any given future year.

Yes, you can do whatever you want also, but I wanted to correct your incorrect assumptions about the choice being made.

[Paul der Krake]

Well, the Fed's dual mandate is full employment and price stability, the latter everyone within a mile of the Fed building agrees should be 2%.

Is it possible the Fed could totally fail to curb or induce inflation? Sure. Is it possible that a new school of thought emerges and now everybody agrees 7% is the target? Sure.

The Fed isn't in the business of deceiving the public, on the contrary they go to extreme lengths to maintain stability. For all intents and purposes, assuming their target 2% inflation rate is the closest to a reasonable certainty anyone is going to get.

[PhilB]

It is perfectly practicable to model in either today's prices or absolute dollars.  Both methods involve making assumptions - and you have to make sure the assumptions you use match the way you are modelling.  Both methods need to be updated regularly to reflect actual inflation (you might get away without doing so for awhile on the absolute basis if actual inflation is close to your guess).  Both methods can have drawbacks for certain numbers.

The key factor in choosing which to go for is probably what question you are trying to answer by building the model.  For a business, that's all about your cashflow and your metrics and, for both of these, absolute dollars works best because they are what you will publish and be judged on.  If you have a complicated income pattern and are trying to answer the question 'how is my sustainable income likely to change over time?' then today's dollars has the big advantage of delivering an answer you can instantly understand.  If you have a simple income model, eg 4% drawdown and ignore social security, and the purpose of your model is primarily to track how your stash is doing against budget then Sol's method is every bit as good if not better.

My own situation is horribly complex with lots of different income streams, and I'm also not planning for a flat expenditure level, so for me an absolute dollar model wouldn't work well as I'd have to convert the answers to understand them.  I still have some numbers that have to be modelled in absolute terms though - notably the benefit crystallisation event at age 75 - so something will have to be converted whatever I do. 

Just use the method that gives the majority of the numbers you are interested in in the form you need them in.

[DreamFIRE]

Well, the Fed's dual mandate is full employment and price stability, the latter everyone within a mile of the Fed building agrees should be 2%.

The Fed targets 2% core PCE.  While core PCE is running right about 2% right now, CPI headline inflation is nearly 3% year over year in July and has been on the rise.  Then, CPI-E (the consumer price index most relevant to retirees), usually accelerates at an even faster rate than CPI.

https://www.advisorperspectives.com/dshort/updates/2018/08/30/two-measures-of-inflation-and-fed-policy

[beer-man]

Reading and listening to others. Lots of bloggers out there have outlined their withdrawal strategy, curious to see if they will work in a bear market.
  My basic plan is to accumulate till our taxable is enough to carry us till 55. From age whatever till 55 we will live off taxable and convert IRA to Roth. Then 55-65 is burning through the rest of the 401k and trad IRA. 65-70 when IRA is close to out start SS which should cover 80-90% of our needs and hopefully we will also have 150-200k Roth to pull from tax free.
  It’s a plan that keeps income low and steady and minimizes taxes. Healthcare will either be covered with part time job or tri-care


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