• Question
• # Cost of living-- best case

Asked by a 88 year old man from Bronx, NY on 8/16/2012

Cost of living-- best case

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• Categories: Retirement Planning, Inflation and COLA

• ## Editorial NewRetirement

### San Francisco, CA

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• Thank you for using the NewRetirement Retirement Calculator!
https://www.newretirement.com/retirement-calculator/default.aspx

Good for you for asking about Cost of Living Adjustments (COLA)! Calculating how much your expenses may rise during retirement is critical to the success of a retirement plan.

The NewRetirement Retirement Calculator uses the following assumptions when we calculate your retirement income and expenses forward:

General Assumptions:
Pre-retirement income grows at 3% annually and then stops at your retirement age
Other/part time income starts at retirement
Home values increase at 3% annually
Income taxes are estimated to be 25% before retirement and 20% post retirement
Health Care inflation rate is assumed to be 6.3% (based on estimates made by the U.S. Department of Health and Human Services in October 2010 healthcare costs are expected to increase, on average, by 6.3 percent annually until the year 2019)
If someone already has a reverse mortgage - their home equity is not included as part of their wealth
When you pay off a debt, you save half the extra money (if expenses permit) and spend the other half

We also offer you a range for some of the most critical numbers -- showing you an optimistic scenario and a pessimistic scenario for the following:
Optimistic scenario:
Inflation = 0.5% per year (based on the market forecast for inflation arrived at by comparing the 10 year TIPS to the 10 year nominal Treasury)
Medical Costs are based on an average case in the BC CRR research
Assets grow in value at 4.5% annually (based on the current long term bond (30 year) rate of return, which has beaten stocks in recent decades)

Pessimistic scenario:
Inflation = 3% per year (historical average over the last 20-30 years)
Medical Costs are based on the highest 5% case in the BC CRR research
Assets grow in value at 1% annually (based on the current short term low return investment environment)

Sample Research Sources:
http://www.longtermcare.gov/LTC/Main_Site/Tools/State_Costs.aspx
http://www.longtermcare.gov/LTC/Main_Site/Paying/Index.aspx