TSP Calculations and Inflation

[Zuma]

Hi,

I'm trying to understand the effects of inflation upon my estimated TSP Account balance as determined by the Official TSP website calculator. For instance, assume that the calculator estimates that, in 15 years, I'll have $1.5 million. I presume that I'll have to independently determine the actual purchasing power of that amount based on estimated inflation over the next 15 years (something like 3% per year?)

I suppose that the effective increase of my donations, based on increases to my salary, will somewhat offset the need to adjust for inflation, but to what extent? e.g. presume that I currently earn $100K annually, and contribute 15%, and will continue to contribute 15% throughout the next 15 years. My salary continuously increases, through COLAs and promotions, at a rate of 4% per year. The natural increase in contributions will somewhat offset inflation, but to what extent?

Then again, that's based on the assumption that the TSP Calculator DOESN'T automatically include some sort of estimated increase in salary... Safe bet that it doesn't include such a factor.

Thanks

 

[SkyPilot]

You are correct, the TSP calculator does not adjust for inflation, only raw sums. There are any number of calculators available online for retirement planning that offer this feature. Just "Google" retirement calculator.

Good Luck!

http://www.bls.gov/cpi/

 

[FundSurfer]

USGS TSP calculator

Look at the USGS calculator. It is much more flexible and more clear in terms of assumptions.

I'd suggest using the percentage salary increase function. Look at where your salary would be when you retire in the output and compare that to your current salary. That will give you an idea of the impact of inflation if you use salary increase of just inflation (2-3%).

Alternatively, if you expect to move up the ladder, use higher salary increases (you could even plug in anticipated step increases) and then use time-value of money calculations to put those numbers into todays dollars as a post calculation you do yourself.

I'd bet there is a website calculator for this somewhere as well.

 

[Zuma]

Thanks for the help guys. The USGS link was especially helpful. I've used that calculator before, but somehow I'd forgotten about it. Very nice

 

[Ed]

Hi,

I'm trying to understand the effects of inflation upon my estimated TSP Account balance as determined by the Official TSP website calculator. For instance, assume that the calculator estimates that, in 15 years, I'll have $1.5 million. I presume that I'll have to independently determine the actual purchasing power of that amount based on estimated inflation over the next 15 years (something like 3% per year?)

I suppose that the effective increase of my donations, based on increases to my salary, will somewhat offset the need to adjust for inflation, but to what extent? e.g. presume that I currently earn $100K annually, and contribute 15%, and will continue to contribute 15% throughout the next 15 years. My salary continuously increases, through COLAs and promotions, at a rate of 4% per year. The natural increase in contributions will somewhat offset inflation, but to what extent?

Then again, that's based on the assumption that the TSP Calculator DOESN'T automatically include some sort of estimated increase in salary... Safe bet that it doesn't include such a factor.

Thanks

My thoughts:

1) There is no longer an interest ceiling on contributions. It is now a dollar amount which in 2007 is $15,500. Total catch-up contribution, age 50 and over, remains the same at $5,000.
2) Discount your project TSP value to today's dollars using, as a safe bet, the rate of inflation (e.g., 3% or 4%). Excel spreadsheet can do the calculation or any hand held calculator that has financial features.

If you need help, let me know.

Ed