Determining consumption in nominal dollars

Perhaps you should think of things this way: the reason that the program provides you with real rather than nominal dollars in the future is so that you'll know what these future numbers mean according to your present perspective. Or put it differently, in the present, a nominal and a real dollar is the same. In 2017, a nominal and a real dollar will be the same from the perspective of 2017. You don't want to convert these real dollars back to nominal dollars now, for that would be to eliminate the erosion that inflation will have on those dollars. If you have your assumptions set to 3% inflation, then you are already adjusting those future dollars to account for inflation--and if inflation does turn out to be 3%, then your actual spending power will be just what the program says it will be. So your practical planning issues will thus be properly accounted for. If you overestimate inflation's rise, then you'll be planning conservatively, and if you set inflation to say 1% or some unrealistically low number, then you'll end up with less spending power than the program indicates at that setting.

So I think you are just confusing the future and the present a bit. Perhaps you are just thinking too hard about it. For planning, you can set your inflation at the historical average, but then you can run scenarios with it up at 4 or 5 or 6 percent if you want to see that impact on your checkbook in the year 2017. In this way you can adjust so that when 2017 gets here, you'll have the purchasing power that ESPlanner said you would have--given all assumptions are correct.

I hope that helps some.

Dan

OK, let me take a stab at that for you too.

Think of the "bottom line" that you are solving for with this program as household "consumption" (also expressed equivalently as scaled to per-person living standard if you have spouse or children).

What you are trying to do here is discover what is your available per-person living standard. So the first time you enter your data and run the program, you see the column per-person living standard and you take note both of its level in dollars, but also whether it is smooth or not. Then you can begin to manipulate variables (if they are something you can manipulate such as retire early, retire late, take SS late/early, sell some asset, contribute more to a 401(k), etc.). You then are looking to see the impact of these many, many decisions upon your living standard--both in terms of how how it is, but also the shape of the line over time. Most of us prefer it to be smooth, or moving upward rather than rich now, starve later or starve now, rich later.

So that's the big picture of what you are doing. And I suspect you already "got" all of that. Sorry for running on.

So to finally get to your question: how many real dollars I will need to allocate in 2017 to achieve the recommended consumption expressed in nominal dollars. I suppose running the program in 2017 will give me the answer then, but not predictively.

You can see the Recommended table and see that your living standard is relatively stable from now down through the years--or perhaps if you are younger, you see the standard going up? And the Saving column shows how much to save (or withdraw) in today's dollars each year in order to achieve that standard of living. Of course it's complicated by your retirement saving, earnings, etc. But you see, what you are shown here is more like a trajectory into the future. All kinds of things could happen between now and then, but you'll be making adjustments along the way. If you get a huge raise beyond what you told ESPlanner in future earnings, you'll plug that in and create a new set of trajectories. But given what you know now and given that it comes to pass, then you know how your economy will play out and how the myriad of variables interact to provide you with a stable living standard.

Perhaps the kernel of your question is in the term "allocate." I'm not sure what that means. The program is showing you what is available after taxes, housing, etc. It's showing how much to save or de-save in today's dollars. If it says to de-save 2000.00 in the year 2017, who cares how much that will be in nominal dollars on that date really. That is, why bother with the conversion? For if you have estimated inflation correctly, it will feel like 2000.00 in today's dollars and most importantly, it will be there for you to withdraw if your other variables are accurate. I suppose it might be interesting to know what that will be in future nominal dollars, but it's just a curiosity really. Most people would only understand the meaning of a dollar in terms of what a dollar means today.

Again, I hope this helps. I know that there are a lot of concepts to adjust to in a program like this--but it's worth the effort!

Dan