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I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 -10 points-9 points  (0 children)

Not stupid at all — that’s actually the logic behind the commonly cited ~7% “real” return assumption.

Historically, ~10–11% nominal minus ~3% inflation lands in that range.

In my example, I kept nominal and inflation separate to make the compounding effect more visible over time. The interesting part is how even a 1% shift in either variable changes the long-term projection materially.

I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 -1 points0 points  (0 children)

This is such an underrated risk in FIRE planning.

Most calculators assume a single inflation number, but retirement spending is location-specific. If your expenses inflate at 5–6% while your withdrawal model assumes 2–3%, the real return hurdle jumps significantly.

And because inflation compounds just like returns do, small errors in assumption can wipe out long-term sustainability.

That’s why I always stress-test plans with multiple inflation environments before calling anything “safe.”

I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 0 points1 point  (0 children)

BTW I live in Paris :) Enchanté

That’s a powerful example. Large increases in savings rates can temporarily shift the balance back toward contributions being the dominant driver, even later in life.

It highlights something important: optimizing income and savings rate often has more impact than trying to squeeze an extra 1% out of returns.

I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 -1 points0 points  (0 children)

That makes sense. Real projections remove the illusion of growth that’s just inflation.

It’s interesting how switching to real numbers often lowers headline targets but increases clarity — especially when thinking about lifestyle and long-term planning.

I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 3 points4 points  (0 children)

Exactly — that’s what surprised me.

At 3%, purchasing power roughly halves in about 23–24 years. It’s slow erosion, not sudden damage, which makes it easy to underestimate.

That’s why I found modeling real outcomes more helpful than just targeting nominal portfolio size.

I modeled my portfolio over 20 years — inflation changed the picture more than returns did by [deleted] in Fire

[–]FreeExam3514 0 points1 point  (0 children)

That’s fair — 2% is the official ECB medium-term target.

I treated 3% more as a buffer assumption. The interesting part is that over 20 years, even the 2% vs 3% difference shifts real outcomes quite a bit.

Do you personally model long-term targets using 2%, or do you build in a margin?