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How can you model something for which you have no real data ;) ? I guess multiplying the government provided numbers times 3 would give a somewhat accurate esti
by sirwhinesalot 5y ago
How can you model something for which you have no real data ;) ?
I guess multiplying the government provided numbers times 3 would give a somewhat accurate estimation.
Even if you trust the government numbers suddenly going from 2% inflation to 8% inflation ruins most FIRE plans which tend to have razor thin margins (so to say) on the returns they get on their investments.
- bruce511 5y agoBear in mind that there is no "real data" of the future. There is only present and past data. And modeling based on that, well, let's say there are no guarantees in life. Part of planning is understanding where the risks are, what the premises are that the model relies on and so on. Depending on inflation being 0-2% over a 30 to 40 year working-life seems optimistic. So, in planning, some diversification is appropriate. Some part of your retirement earnings should be inflation-adjusted. For example say you get rent on a property. That rent will tend to rise following inflation. Equities, especially ones chosen for dividends will also tend to follow inflation (over the long term). By contrast a fixed-yield item like say a bond returning 5% is not inflation linked, and leaves you vulnerable to inflation variances. If your model only relies on fixed-yield, and does not allow for variable amounts of inflation, then the model needs updating IMO.
- sirwhinesalot 5y agoDiversifying with some real-estate (maybe a REIT) sounds like a good approach to counter inflation.