Constant dollar adjustments for inflation in ESPlanner


I've relied on ESPlanner for years and love it. Having entered retirement, though, I need to understand a bit more about what's going on "under the hood."

I haven't been able to figure out the methodology ESPlanner uses to adjust for changes in purchasing power and income to project constant-dollar or real-dollar values that appear to be necessary to maintain level consumption. The US Census Bureau website uses the adjustment method here: (They are using changes in CPI-U, the consumer price index for urban consumers ex food and fuel, which represents goods bought by consumers vs. the GDP deflator which excludes purchase of foreign goods and purchases by businesses, government, etc.)

Investment income is being adjusted, of course, for both inflation and nominal ROI to represent real-dollar returns. Shouldn’t the current-dollar purchasing power of the underlying capital assets, however, decrease due to inflation. How does ESPlanner account for inflation-related losses in purchasing power of current-dollar capital assets in calculating and representing the constant-dollar value of initial current-dollar capital asset values? How would real-dollar investment returns offset any inflation-related losses in purchasing power of the underlying capital assets used to generate those returns?

On the flip side, discretionary spending consumption is also expressed in constant dollar terms. For this to be so, does this imply that calculations converting current-dollar capital assets and real ROI to constant-dollar terms result in maintaining the ability to purchase the same basket of goods and services at constant dollars over time?

Social security benefits are also represented in constant dollars. These apparently aren’t being adjusted for SS cost-of-living adjustments which are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and may vary considerably from year-to-year.

Medicare Part B premiums are being indexed at about 4.6% per annum. “Medical inflation, defined as the Consumer Price Index for All Urban Consumers: Medical Care, obtained from the Federal Reserve Bank of St. Louis (FRED), has averaged +5.42% per year from 1948 to 2012, versus +3.63% for the CPI-U. Therefore, the increase in medical costs has been approximately 50% higher than general inflation.” (

Why adjust for medicare premium increases and not social security?

Thanks, Craig


dan royer's picture

Yes, all of our reports are showing inflation-adjusted dollars per your Settings/Assumptions and shown in current year dollars. So when you see the inflation-adjusted SS benefit remain the same down the column that's because it's presented in current dollars, today's dollars. The fact that it's not decreasing each year indicates that it's getting an inflation adjustment each year.

We typically set Medicare B premiums by default to outpace inflation, so you may see those amounts in the column rise. If they were were merely COLA adjusted, you'd see them remain constant down the column.

If you happen to have a mortgage, you'd see that payment decrease through the years in your housing report because it's fixed rate and thus not adjusted for inflation each year.

In short, a number that remains constant down the column through the years is reflecting the fact that it's inflation adjusted. $5000 shown in the year 2031 means that in terms of purchasing power, it will purchase what $5000 purchases in 2018. In nominal terms, that $5K will actually be much higher--but we don't show these misleading nominal dollars; instead we show the real dollars relative to the current year.


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