Target FIRE numbers: Absolute or before inflation (i.e. today's dollars)

[Live Free]

Is their a consistent approach for how people offer their target FIRE values? For example, if a person states their target FIRE number as $600,000 and they say they hope to achieve it in 8 years, do they actually mean more like $760,000 (after inflation) or do they just mean $600,000?

[nereo]

It really depends on the person, but personally I find it easier to think in terms of today's dollars and then guesstimate what those will be in X years. Since I'm interested in REAL returns (i.e. Inflation adjusted) it largely doesn't matter how much a dollar will be worth in 10, 20 or 30 years.

For example, I want non-mortgage* annual spending to be about $20k/year in 2017 dollars, which means investments of $500k if I want a 4% WR.  So when estimating how long it will take to have that equivalent amount in savings I calculate REAL returns of 4% (lowest), 6% (about average) and 8% (slightly high), while including my annual contributions. 
Because I only deal with 2017 dollars there's no need to consider inflation in those calculations. I know I'll revisit everything from spending levels to withdraw rates multiple times during my accumulation phase, so I don't stress too much about it.


*mortage is excluded because it's fixed (and a good inflation hedge).

[BTDretire]

Is their a consistent approach for how people offer their target FIRE values? For example, if a person states their target FIRE number as $600,000 and they say they hope to achieve it in 8 years, do they actually mean more like $760,000 (after inflation) or do they just mean $600,000?

  Hi Live,
  That has always been a bit of sticky point with me also, I have written about it in response to posts,
but it doesn't seem to get much traction.
 As I read most posts, inflation until FIRE is not figured in the calculations, but is considered after
FIRE is reached as, "I'll spend 4% and the extra growth will give me an inflation raise each year"
 Luckily or unluckily, I'm older, and just retired, so I only need to worry about inflation after FIRE.

[HBFI]

I would agree with nereo’s recommendation on focusing on real numbers today, rather than some guestimate at what inflation will be over the next 8 years in your geographic region and for your expenses personally.  I’m 12 years into this journey and a can say that setting the overall goal and an action plan is the first big step.  Then closely monitoring your spending over the years is the next.  For me, I’ve had personal deflation the last couple years as I’ve embraced greater frugality and efficiency in my spending.  Just because the CPI (or whatever measure) goes up by X%, doesn’t mean you will experience a similar outcome. 

By the time you’re arriving at your original target, you’ll know whether you need to tweak the math on your stache target based on what your spending trends have been.  I’ve refined my target number continuously over the years and expect it will move around as I get closer.  Similarly, very few folks expenses are going to be identical year-after-year.  You’re inevitably going to have some flexibility in your annual spending along with certain years where you exceed your rule of thumb target (4% or whatever you prefer).  It's good to be thinking about things like inflation, no doubt, but I think staying focused on the big picture when you're ~8 years out is the #1 consideration and set your mind in advance that you'll likely tweak and adjust as you go along. 

[marty998]

Yeah look inflation could be anything. And there's a pretty big difference between inflation of say 1% for 10 years vs 4% for 10 years.

People get too banged up stressing on arbitrary targets (Nice Round Number Syndrome). You'll figure it out as you go, I wouldn't sweat it too much. As long as you don't keep too much in pure basic cash then you'll be fine.

[soccerluvof4]

I agree to look at todays dollars. When I chose my number my first goal was to be debt free so no mortgage and no car payments, credit car payments etc.. So bottom line a number that I felt at that given time in todays dollars was right for me. Everyone does it a little different as some includes their house value etc..  For me as I said I just wanted invested /cash dollars.

[Prairie Stash]

Todays dollars because a couple years doesn't make much difference, when you have only a few years left then its time to get serious about finalizing the date. If you're arguing about the difference over 20 years then its a hypothetical argument you're positing, 20 years from now a lot more could change than inflation. 

Until you get reasonably close to FIRE its pointless to pick an exact month, perhaps that month ends up being the next crash and you need to ride it out for 3 months, sometimes real world events trump math. Lets keep it in mind, the SWR is a simplified formula, expecting it to be precise is contrary to its intentions of being a general easy to use benchmark.

[SwordGuy]

There are two decisions to make and two different numbers are needed to make them.

Decision 1:  ABOUT how much will I need to live on and ABOUT when can I expect to be FI?

Decision 2:  Am I there yet?


I understand "Today's" dollars.   Intellectually I know that inflation will kick in and things subject to it will cost more in the future.  You can give me a number in 2035 dollars based on expected inflation and it will mean nothing to me until I back-calculate how much money that is in today's dollars.   Quick sanity test to tell me whether I'm right or not:

At standard rates of inflation, what can you expect to be able to buy for a round $1,900,000.00 in 100 years?

Any idea?    A McDonald's Quarter Pounder?   A nice pickup truck?   An average sedan for yourself, your wife, and your kid?   A starter house?   A mansion?   If I hadn't picked a number in today's dollars and compounded it out at 3% for 100 years, I wouldn't have any idea whether the 2116 $ amount would have been either.   It's meaningless to me.

Now, if I back-calculate that amount to today's dollars I end up with about $100,000.   That's a number I understand.

So, setting my target income for future planning is done in today's dollars.   I know how much my target income needs to be today to have the quality of life that I'm aiming for.

But I have to pay attention to inflation.

Homes tend to go up, on average, with inflation.   So property values will, on average, keep pace with inflation. 
All property is local, of course, and local conditions trump the average.

SS is supposed to keep up with inflation.   Stock market returns average about 7% AFTER inflation is factored out, so we can plan on those numbers to keep pace, too.

Cash sitting in the bank won't, so I'll need to plan on that money getting smaller over time, not bigger. :(

As long as my sources of income and wealth tend to keep pace with inflation, I can use today's dollars to answer all questions for decision one.

Let's say you believe you'll be ready to be FI in 15 years.

Now, when you want to know "Am I there, yet?"; are you thinking you'll need to know future dollars for that decision?

Nope, because in 15 years you'll be dealing with today's dollars then, too. Not today's today's dollars, but the future's today's dollars. :)   

And you'll know whether the wealth and income you have then in the future's today's dollars are enough.

Hope that helps!



 

[BTDretire]

Let's say you believe you'll be ready to be FI in 15 years.

Now, when you want to know "Am I there, yet?"; are you thinking you'll need to know future dollars for that decision?

Nope, because in 15 years you'll be dealing with today's dollars then, too. Not today's today's dollars, but the future's today's dollars. :)   

And you'll know whether the wealth and income you have then in the future's today's dollars are enough.

 OK, 15 years, I want to save $1,000,000 live on 4% or $40,000.
So I save and invest and I get to $1,000,000 in 15 years.
 If we average 3% inflation over the next 15 years, I pull out my $40,000
and it only buys me $25,674 worth of goods.
 But we might have 0% inflation or we might have 6% inflation, we don't know.
Does that mean we should not plan some inflation number?
Does that mean we should stick our head in the sand because it is hard enough to save,
now if I include inflation, I might just forget the whole thing, cause now it's harder.
 No. You do need to use real numbers though.
 15 years from now it might be nice to have $1,350,000, more or less :-).

[VoteCthulu]

So, the answer to your question is no, there's no consistent approach, but when the time horizon gets to be less than 5 years it doesn't matter very much.

[Live Free]

OK, that's what I guessed, but I wasn't sure. Just from a curiosity standpoint, I wish everyone used the same standard. People are always throwing out 'their number', and depending on the time-frame, there's a big difference in today's dollars vs. if they have assumed an average inflation rate.
          I agree with the responses that it's better to think in today's dollars, but I like to figure out what the real amount I will need/want is. (psychologically)If I wait to figure out the true amount, I feel like I will be shooting at a moving target. From a practical standpoint, I don't think it makes much difference.

[nereo]

OK, that's what I guessed, but I wasn't sure. Just from a curiosity standpoint, I wish everyone used the same standard. People are always throwing out 'their number', and depending on the time-frame, there's a big difference in today's dollars vs. if they have assumed an average inflation rate.
          I agree with the responses that it's better to think in today's dollars, but I like to figure out what the real amount I will need/want is. (psychologically)If I wait to figure out the true amount, I feel like I will be shooting at a moving target. From a practical standpoint, I don't think it makes much difference.

I see your point, but it's just very hard and sometimes demoralizing to think in terms of far-off inflated terms.  For example, for "full FI" we have a number of ~$800,000.  But because of our approach (going part-time for years) it might be 10+ years before we get there, and our "true, 2027 number" is probably closer to 1.05MM.  Psycologically that's harder to swallow, just as geting up at 5:55am seems much harder than 6:05am.
Also, we wouldn't be talking aobut the same amount.  If I say I need about $1.05MM to be fully retired and person "B" who retired 10 years ago says they needed only $650k, it's not immediately obvious that we are talking about almost the exact same amount of wealth.

REgardless, my final advice is not to loose sight of the forest for the trees.  However you do it, the importnat thing is to cut needless spending, save what you can and ensure your spending aligns with your values and is on things that increase your quality of life. Everything else is just minor details.

[Laura33]

Let's say you believe you'll be ready to be FI in 15 years.

Now, when you want to know "Am I there, yet?"; are you thinking you'll need to know future dollars for that decision?

Nope, because in 15 years you'll be dealing with today's dollars then, too. Not today's today's dollars, but the future's today's dollars. :)   

And you'll know whether the wealth and income you have then in the future's today's dollars are enough.

 OK, 15 years, I want to save $1,000,000 live on 4% or $40,000.
So I save and invest and I get to $1,000,000 in 15 years.
 If we average 3% inflation over the next 15 years, I pull out my $40,000
and it only buys me $25,674 worth of goods.
 But we might have 0% inflation or we might have 6% inflation, we don't know.
Does that mean we should not plan some inflation number?
Does that mean we should stick our head in the sand because it is hard enough to save,
now if I include inflation, I might just forget the whole thing, cause now it's harder.
 No. You do need to use real numbers though.
 15 years from now it might be nice to have $1,350,000, more or less :-).

I agree with this.  I would use inflation-adjusted dollars when setting up the original plan, because if I want to retire in, say, 15 years, I want to make sure I am setting up my savings plan at the rate I need to cover my anticipated expenses.  The further out you're planning, the more important it is to use inflation-adjusted dollars.  Yeah, it makes for an intimidating number.  But I'd rather be intimidated now than disappointed in 15 years, when I discover that even though I achieved X, I actually need X + 30%. 

OTOH, in 12 years when you're asking "am I there yet," I'd use today's dollars.  Because now you have real expenses to base your RE needs on, and when you're 2-3 years out, inflation isn't going to make that big of a difference in your projections (unless we're in the middle of a huge inflationary spike -- but again, you'd know that, so you could adjust accordingly).

Honestly, I think this question has been largely irrelevant for the past decade or so, because inflation has been so low.  But some of us are old enough to remember 16% mortgage rates.  :-)  I am not counting on inflation remaining this low for the rest of my working/saving career, so my projections are based on an assumed @4% inflation rate.  If that ends up being too high, gee, darn, golly, whatever shall I do?

[nereo]

...
Honestly, I think this question has been largely irrelevant for the past decade or so, because inflation has been so low.  But some of us are old enough to remember 16% mortgage rates.  :-)  I am not counting on inflation remaining this low for the rest of my working/saving career, so my projections are based on an assumed @4% inflation rate.  If that ends up being too high, gee, darn, golly, whatever shall I do?

...and herein lies the problem with trying to use inflation-adjusted numbers for a target; what will annual inflation be over the next decade+? If it was like the previous decade prices in 2027 will be ~22% higher than today.  BUT if it goes closer to the 1980s average they could be ~60% higher.
Ditto for market returns.  Previous decades have had annual return averages as low as -4.4% and as high as 18.3%. That's a pretty huge range.

I say this not to instill fear, but merely to point out some things are out of our control, so there's no need to worry about them. Focus on what you can control.

[aspiringnomad]

I adjust my FIRE number for a constant 3% inflation. Unlikely it'll be spot on (actual inflation has been below the Fed's target of 2% for awhile now), but probably more accurate than not adjusting at all.

[Laura33]

...
Honestly, I think this question has been largely irrelevant for the past decade or so, because inflation has been so low.  But some of us are old enough to remember 16% mortgage rates.  :-)  I am not counting on inflation remaining this low for the rest of my working/saving career, so my projections are based on an assumed @4% inflation rate.  If that ends up being too high, gee, darn, golly, whatever shall I do?

...and herein lies the problem with trying to use inflation-adjusted numbers for a target; what will annual inflation be over the next decade+? If it was like the previous decade prices in 2027 will be ~22% higher than today.  BUT if it goes closer to the 1980s average they could be ~60% higher.
Ditto for market returns.  Previous decades have had annual return averages as low as -4.4% and as high as 18.3%. That's a pretty huge range.

I say this not to instill fear, but merely to point out some things are out of our control, so there's no need to worry about them. Focus on what you can control.

I agree 100% with focusing on what you can control.  But just because you can't control something doesn't mean you don't try to plan for it.  I can't control whether our jobs are going to disappear tomorrow, but I plan for that eventuality by having an emergency fund and keeping my skills up to date.  I can't control inflation, but I do control my savings rate, so I can set my savings target on the conservative side to minimize the risk that I get to my planned RE date and find myself having to work another 3 years.

Clearly, future inflation is not knowable.  So to me, the question is whether assuming some inflation is likely to wind up closer in the end than assuming no inflation at all.  Yes, likely price increases could be anywhere between 22% or 67% -- but they are very, very unlikely to be 0.  Therefore, since I want my projections to be as close as I can get them given all of the unknowns, I'm going to assume some inflation.  I'm not going to spend a huge amount of time fretting about how to choose the exact "right" number, because whatever I guess is going to be wrong -- but it will also very likely be closer to the real number than just assuming no inflation at all.

[SwordGuy]

I'll try again.

Your future income will come from a number of sources.

Some of those sources track with inflation and others do not.

Example:

Average after-inflation US stock Market returns are about 7%.  Actual returns are higher (because they include inflation.)  If you use this after-inflation % as your planning rate of growth, you can treat your stocks as inflation protected and ignore inflation for their contribution to your earnings.

If you are a landlord you will get income from rents.   Rents tend to keep up with inflation with a lag time of the length of the lease.   If you tend to keep your leases to 1 year or less in length, then your rents can be raised as inflation goes up, and it all comes out in the wash.  Avg inflation is about 3%, so you might discount your expected income by 3% to account for the lag in rent increases for a 1 year lease.  That should be close enough for planning purposes.

If you are a farmer, prices should keep pace with inflation also.

Social Security and Medicare keep pace with inflation.


Cash sitting in a savings or checking acct in the bank does not tend to keep pace with inflation.   You can expect it to lose (3 - interest rate)% per year to inflation.  So, if you are getting 1% interest, you can expect it to lose 2% in value per year on average.

Royalties based on a percentage of the price of a sale will tend to track inflation.  Royalties with a flat rate per unit will not.  So, either ignore inflation or assume it will lose 3% per year in value.

If you are getting income from some other source in the future, you'll have to evaluate whether it will keep up with inflation or not and treat it accordingly.

Since so many of the likely income sources will keep pace with inflation, it's just easier to plan in today's dollars.

Hope that makes more sense to you.


Now, what happens if this year we have 12% inflation this year, in the first year of your 15 year plan? 

Well, at the end of the 12% inflation year you will know how much things cost, so adjust the target income you want to have in 14 years by the amount of that year's inflation.   

If your stocks, rents, farm produce, royalties, and social security/medicare income sources are doing their thing, they should be adjusting upwards to match inflation and all will be well.

That big pile of cash you had sitting around "for safety" just lost 12% of its value, though.

Adjust your new plan to suit your new circumstances.   Lather, rinse and repeat for the next 14 years.

The only surprise, if you've been prudently cautious in your plans all along and built in some safety margins, is that you're doing better than you planned.

How would this all change if we instead tracked the numbers in future dollars 15 years from now?

Well, we would add 15 years of inflation into our stock, rent, farm, social security, medicare and royalty income amounts.  And we would add 15 years of inflation into our expenses.

But we wouldn't subtract it from the cash, we would just grow that at its interest rate.

So we would do a whole lot more math and get the exact same answer as to whether our plan is likely to work or not.

[Laura33]

@Swordguy -- We're just thinking about it differently -- I'm doing very simplistic "what's your 'number'?" math -- i.e., "X = 25 x ER expenses." 

X = total investments I need as of my planned ER date (2025).  But "ER expenses" = based on 2016 data.  So if I just multiply it out, I get X₍₂₀₁₆₎, not X₍₂₀₂₅₎.   Ergo, I add inflation to get my 2025 target. 

Now, if I want to calculate how close to X₍₂₀₂₅₎ my current assets will get me, your way is the way to go.

[Huskie87]

I agree that you should use an inflation number, say 2-3%, when planning long term.  BUT, you should also understand how arbitrary that number is.  Inflation after all is just a number that summarizes many different things.

For example, food inflation has been well less than overall inflation for the past several decades.  Food prices as an aggregate, shown in the link below, are actually lower than they were a year ago.

https://fred.stlouisfed.org/series/CPIUFDNS#0

Healthcare inflation on the other hand has run well above overall inflation.  My point is that everyone will be affected differently.  Someone who doesn't buy many groceries but spends a lot on healthcare has experienced a much higher rate of inflation than someone who cooks at home and has no medical bills.

So yes, plan on some inflation, but don't obsess over the right number because you can't find it without a crystal ball.  The important part is you understand the concept and that costs tend to rise over time.

[thenextguy]

Is their a consistent approach for how people offer their target FIRE values? For example, if a person states their target FIRE number as $600,000 and they say they hope to achieve it in 8 years, do they actually mean more like $760,000 (after inflation) or do they just mean $600,000?

They mean $760,000 (or whatever it is with inflation). Or at least they should mean that.

[Prairie Stash]

I agree with this.  I would use inflation-adjusted dollars when setting up the original plan, because if I want to retire in, say, 15 years, I want to make sure I am setting up my savings plan at the rate I need to cover my anticipated expenses.  The further out you're planning, the more important it is to use inflation-adjusted dollars.  Yeah, it makes for an intimidating number.  But I'd rather be intimidated now than disappointed in 15 years, when I discover that even though I achieved X, I actually need X + 30%. 

OTOH, in 12 years when you're asking "am I there yet," I'd use today's dollars.  Because now you have real expenses to base your RE needs on, and when you're 2-3 years out, inflation isn't going to make that big of a difference in your projections (unless we're in the middle of a huge inflationary spike -- but again, you'd know that, so you could adjust accordingly).

Honestly, I think this question has been largely irrelevant for the past decade or so, because inflation has been so low.  But some of us are old enough to remember 16% mortgage rates.  :-)  I am not counting on inflation remaining this low for the rest of my working/saving career, so my projections are based on an assumed @4% inflation rate.  If that ends up being too high, gee, darn, golly, whatever shall I do?

Your savings rate is usually inflation adjusted as well. Since income, expenses and savings all go up (for me at least) at the same rate of inflation, its a wash. I can expect a 2%/year raise for the next decade. My expenses will go up by inflation at 2%. My savings will also go up 2%/year. My same coworkers who had 12% mortgages also received 15% pay raises, does anyone remember to mention that when they complain?


In reality my expenses rise lower than inflation, due to the "substitution effect". This is a long conversation that's taught in economics, its a real world discrepancy between calculated and actual inflation rates experienced by consumers. The US Bureau of statistics that people quote for inflation also recognizes it as an error in the calculation, its not a big deal, it actually works to your benefit to ignore it because its a buffer in the savings rate.

[Playing with Fire UK]

There are two decisions to make and two different numbers are needed to make them.

Decision 1:  ABOUT how much will I need to live on and ABOUT when can I expect to be FI?
Decision 2:  Am I there yet?
...
Not today's today's dollars, but the future's today's dollars. :)   

And you'll know whether the wealth and income you have then in the future's today's dollars are enough.

Hope that helps!

This is what I do instinctively but far better explained that I could have said it.

The number of dollars (pounds for me) we spend on something doesn't really matter. Just as it doesn't really matter whether we measure a length in mm, cm, m or km (or inches or chains or whatever). The important thing is that I'm trying to measure is that [what I spent last year]x25(*) = [Income producing assets] when I pull the ripcord. This includes my personal rate of inflation because it depends on what I'm spending, which is a moving target.

* or 33 or 50 or 10pi

I could say that my FIRE number is the money that will buy 121,000 Big Macs, or 584 iPhones, or 1.53 child-raisings. None of these will be exactly right but they will include a measure of inflation. They also aren't as useful a measure as today's dollars and people can give you strange looks when you talk in terms of hundred thousand Big Macs.

However, there are some people that want a million dollars, (or five), not because they want the things that a million dollars can buy, but because they want to do a millionaire dance and learn the secret millionaire handshake. I'm guessing that these folk are less bothered about including inflation in their target numbers.

We should be talking about inflation a bit more than we do, because in the long run there is a difference between wanting a million dollars in twenty years, and wanting the amount of money it will take to buy a million dollars worth of stuff today in twenty years. But we don't want to let it dominate the conversation because a) dull and clunky conversations result and b) it scares off people who are getting started.

In the short run, I find it helpful to ignore inflation. By setting a fixed value for what a grocery shop should cost or what I'll pay for a chocolate bar, I have a tendency to reduce what I spend in real terms.

[BTDretire]

Rebuttal #2: The level of future inflation is unknowable/we shouldn't estimate the impact of an unknowable

 On #2,
  funny that people dismiss unknowable inflation,
but are comfortable making predictions on unknowable future equity returns.

 On#2, ahh, case close!

[Eric]

Now, when you want to know "Am I there, yet?"; are you thinking you'll need to know future dollars for that decision?

Nope, because in 15 years you'll be dealing with today's dollars then, too. Not today's today's dollars, but the future's today's dollars. :)   

And you'll know whether the wealth and income you have then in the future's today's dollars are enough.

Hope that helps!

Another vote for always using today's dollars.  I mean, how could you not, considering that you'd get to use excellent phrases like "Not today's today's dollars, but the future's today's dollars. "

[neo von retorch]

As long as you use inflation-adjusted returns, you should be fine using today's dollars in your projections. The only really critical mistake you could make would be to use pre-inflation returns (10%) but otherwise leave all your projections (like expenses and desired nest egg) in today's dollars. Then you'd get a nasty surprise when your investment returns aren't keeping up with your projections. (In my case, I use a more conservative 5% return for my projections, with the hopes that I end up with pleasant surprise.)

Each yearEvery few days, I'll update my spreadsheet with my up to date budget (based on real expenses) and up to date actual investment returns. When I approach FIRE, the numbers will have been adjusted by the actual inflation that happened.

[sol]

Everything always in literal dollars.

Otherwise, the spreadsheet you make today will be useless next year, unless you are later going to uninflate everything back to the previous year's values.  That's dumb.

My spreadsheet was made years ago and includes dollars all the way to age 100.  I can check in on it at age 50 or 80 and it will still be exactly as valid as the day it was made, because it will reflect my contemporary bank balances and my contemporary expenses for every year.

I don't understand people who want to use smaller effective return rates and constant expenses.  Why not just inflate your expenses on paper the same way they will inflate in real life? 

[Eric]

My spreadsheet was made years ago and includes dollars all the way to age 100.  I can check in on it at age 50 or 80 and it will still be exactly as valid as the day it was made, because it will reflect my contemporary bank balances and my contemporary expenses for every year.

I love spreadsheets as much as life itself, but even I have to chuckle about the idea of checking a 40+ year old spreadsheet when I'm 80 years old.  Get off the computer and go spend time with your grandchildren Sol!  :)

[neo von retorch]

I don't understand people who want to use smaller effective return rates and constant expenses.  Why not just inflate your expenses on paper the same way they will inflate in real life?

I'm not sure if this relates to my statement (i.e. 5% return, real expenses logged to adjust my expected budget) but if so, can you elaborate a bit? I don't grok!

[Metric Mouse]

My spreadsheet was made years ago and includes dollars all the way to age 100.  I can check in on it at age 50 or 80 and it will still be exactly as valid as the day it was made, because it will reflect my contemporary bank balances and my contemporary expenses for every year.

I love spreadsheets as much as life itself, but even I have to chuckle about the idea of checking a 40+ year old spreadsheet when I'm 80 years old.  Get off the computer and go spend time with your grandchildren Sol!  :)

I very much worry about the accuracy of my spreadsheet calculations from past years. :D

[Playing with Fire UK]

My spreadsheet was made years ago and includes dollars all the way to age 100.  I can check in on it at age 50 or 80 and it will still be exactly as valid as the day it was made, because it will reflect my contemporary bank balances and my contemporary expenses for every year.

I love spreadsheets as much as life itself, but even I have to chuckle about the idea of checking a 40+ year old spreadsheet when I'm 80 years old.  Get off the computer and go spend time with your grandchildren Sol!  :)

I very much worry about the accuracy of my spreadsheet calculations from past years. :D

I worry more about the rate of spreadsheet attrition than short term inflation.

There are so many problems in life to which the answer is build another spreadsheet.

[gerardc]

It's really the same whether you use a target in today's $ and predicted real returns, or a target in future $ with predicted inflation and total returns. The point of that exercise is to estimate timelines for planning, nothing more.

It doesn't really matter which option you choose because as time goes on, you'll see what actual returns and actual inflation have been, and what your new expenses are, anyway, so your target will be recalculated. It's not like in 2025 you'll still be using your original target in 2017 dollars...

[Metric Mouse]

It's really the same whether you use a target in today's $ and predicted real returns, or a target in future $ with predicted inflation and total returns. The point of that exercise is to estimate timelines for planning, nothing more.

It doesn't really matter which option you choose because as time goes on, you'll see what actual returns and actual inflation have been, and what your new expenses are, anyway, so your target will be recalculated. It's not like in 2025 you'll still be using your original target in 2017 dollars...

Recalculate? Why! My spreadsheet is perfectly accurate at all times. How dare you imply otherwise. :D

[Playing with Fire UK]

It's really the same whether you use a target in today's $ and predicted real returns, or a target in future $ with predicted inflation and total returns. The point of that exercise is to estimate timelines for planning, nothing more.

It doesn't really matter which option you choose because as time goes on, you'll see what actual returns and actual inflation have been, and what your new expenses are, anyway, so your target will be recalculated. It's not like in 2025 you'll still be using your original target in 2017 dollars...

Yes, but if you do neither and just decide that you'll retire in 20 years with a million dollars and you never recalculate then you'll have issues.

If you say 'my target is a million dollars' without specifying when those dollars are then the reader doesn't know what you actually mean. It would be like me saying that my PB for high jump is 8 feet, without mentioning that what I mean is 8 times the length of MY foot.

[Metric Mouse]

If you say 'my target is a million dollars' without specifying when those dollars are then the reader doesn't know what you actually mean. It would be like me saying that my PB for high jump is 8 feet, without mentioning that what I mean is 8 times the length of MY foot.

Eight times the current length of your foot, or eight times the future length of your foot at the time of jumping?

[Playing with Fire UK]

If you say 'my target is a million dollars' without specifying when those dollars are then the reader doesn't know what you actually mean. It would be like me saying that my PB for high jump is 8 feet, without mentioning that what I mean is 8 times the length of MY foot.

Eight times the current length of your foot, or eight times the future length of your foot at the time of jumping?

An excellent point MM. And without my estimate of run up speed and the change in length as I get closer to the speed of light you'll never know!

[Prairie Stash]

Is their a consistent approach for how people offer their target FIRE values? For example, if a person states their target FIRE number as $600,000 and they say they hope to achieve it in 8 years, do they actually mean more like $760,000 (after inflation) or do they just mean $600,000?

They mean $760,000 (or whatever it is with inflation). Or at least they should mean that.

Just providing another data point... I also take the $760,000 approach.  The rebuttals for taking any other approach seem to be pretty weak soup:

Rebuttal #1: It's demoralizing/a bigger number makes me sad
Rebuttal #2: The level of future inflation is unknowable/we shouldn't estimate the impact of an unknowable

On #1, this is a probabilistic math question; your feelings have nothing to do with the future macroeconomic environment. On #2, funny that people dismiss  unknowable inflation , but are comfortable making predictions on unknowable future equity returns.

Do you use inflation adjusted savings rates? Give it a few years and you'll notice that in your working years most people get raises that are inflation adjusted. It tends to balance out inflation and you reach equilibrium. I get a raise of 2%, expenses go up 2%, savings go up 2% and the timeline stays constant....

Its a similar argument applied to income as opposed to expenses. If you're comfortable estimating inflation you should also be comfortable estimating income. Look at the bureau of statistics and compare wage growth to inflation. in 1979 the typical wage, adjusted for inflation, is the same as 2016. The easy to read article linked below shows that since 1964 wage increases have pretty much matched inflation.

So in the working part of your life inflation is taken care of by wage growth, its post FIRE that you have to start giving yourself "raises" matching inflation, not pre-FIRE.

http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

[farmecologist]

I like to use retirement calculators like the one Personal Capital has...it takes inflation, etc...into account for you.

Disclaimer: I hate to always plug Personal Cap...but it is the platform I have consolidated all accounts onto..and it works great for me.

[Playing with Fire UK]

In my profession, my annual salary increases have come in big chunks instead of through small, predictable, incremental improvements.  For example, I knew I had leverage and threatened to walk away in October and got a 25% raise. But for different professions, I see what you mean. 

I agree that it varies between professions. I think it also varies with where you are in your career. At the start, or when you get promotions, you can see lumpy growth that beats inflation. But if you get a series of 1%, 2% and 3% wages - that's inflation. On the flip side, when you get a wages freeze and non-zero inflation, you are getting a real pay cut.

[sol]

On the flip side, when you get a wages freeze and non-zero inflation, you are getting a real pay cut.

Like all federal employees, for three years in a row?  Thanks Obama (and the Republican Congress that wrote those budgets)!

Any bets on whether or not Trump restores those 0% pay raises?

[Playing with Fire UK]

On the flip side, when you get a wages freeze and non-zero inflation, you are getting a real pay cut.

Like all federal employees, for three years in a row?  Thanks Obama (and the Republican Congress that wrote those budgets)!

Any bets on whether or not Trump restores those 0% pay raises?

Yep, and it sucks. But 0% pay rises with regular inflation are still far more palatable to most than a pay cut with very low inflation.

[Classical_Liberal]

I'll start worrying about inflation adjusting my final FIRE numbers the year my annual spending stops dropping.

[Metric Mouse]

On the flip side, when you get a wages freeze and non-zero inflation, you are getting a real pay cut.

Like all federal employees, for three years in a row?  Thanks Obama (and the Republican Congress that wrote those budgets)!

Any bets on whether or not Trump restores those 0% pay raises?

Maybe if congress can agree to reduce the deficit in other ways.