Understanding Inflation Modes
Plan in Decades provides three methods for modelling inflation. Each mode applies a different calculation method to the scenario.
The main inflation settings also include a separate Wage Inflation Rate. This rate is available for wage-linked assumptions and is used before the calculation retirement age when an Australian super present value is shown. The consumer-inflation setting is used from that calculation retirement age. Both values are editable.
Available Modes
Fixed Rate
The simplest approach - use a constant inflation rate throughout your scenario.
- Illustrative use: Applying one constant rate throughout the scenario
- How it works: The same rate applies to every year
- Typical values: 2-3% for developed economies
This is the default mode. The selected rate remains an editable scenario assumption.
Historical CPI (US, 1928-2024)
Use actual historical Consumer Price Index data from the United States.
- Illustrative use: Applying a recorded historical sequence to the scenario
- Data range: 1928 to 2024 (96 years of data)
- Historical start year: Choose where to begin reading the data
Configuration options:
- Historical Start Year: Pick a year from 1928-2024 to begin reading inflation data
- Wrap Historical Data: When enabled, if your scenario extends beyond available data, it loops back to your start year. When disabled, the final year’s rate repeats.
This mode is useful for stress-testing scenarios against real economic history, including periods of high inflation (1970s-80s) and low inflation (2010s).
Monte Carlo Simulation
Generate random inflation rates based on statistical parameters.
- Illustrative use: Producing a range of results from randomised rates
- How it works: Each simulation year gets a randomly generated rate
- Parameters: Mean inflation rate and standard deviation
Configuration options:
- Mean Inflation Rate: The average inflation rate (leave at 0 to use the historical average of approximately 3%)
- Standard Deviation: How much rates can vary year-to-year (historical standard deviation is approximately 4%)
Monte Carlo simulations produce a distribution of numerical results from the selected mean and standard deviation. They do not identify a best, worst, or most likely course of action.
Comparing the Modes
| Question to model | Mode that performs that calculation |
|---|---|
| A constant inflation assumption | Fixed Rate |
| A recorded historical sequence | Historical CPI |
| A distribution from randomised rates | Monte Carlo |
Historical Context
US inflation has varied significantly over the past century:
- 1920s-30s: Periods of deflation
- 1940s: War-time inflation spikes
- 1970s-80s: High inflation (peaked at ~14%)
- 1990s-2020s: Generally low and stable (2-3%)
- 2021-2023: Post-pandemic inflation spike
The historical data in Plan in Decades captures all these periods, allowing you to model scenarios that account for real economic volatility.
Future Enhancements
Currently, only US CPI data is available. Support for additional countries (Australia, UK, New Zealand) is planned for future releases.
Australian super net returns
The annual net return for a new Australian super account includes investment tax and investment fees, but is still before inflation. Enter a nominal net return; the model applies inflation and the Australian super present-value conversion separately. A return-change milestone does not change the calculation retirement age used for that conversion. See Australian Super Assumptions.
For related numerical concepts, continue in Financial Independence is a Number or Coast FIRE.