I would like an option to inflate expenses rather than income when looking viewing Current $ in PRC. My goal is to better understand what gross income is likely to actually be in current $ and how that might compare with the inflation adjusted expenses.
If I have a fixed pension or annuity that is not indexed for inflation I would like a way to show the income stream remaining constant and have the expenses adjusted for inflation. Currently the income stream for a fixed pension declines and I believe the expenses remain constant when viewed in current dollars.
Perhaps my understanding is incorrect, but it had always bothered me to see a pension income stream decline when viewed in current dollars.
@morlock103 I'm afraid you are misunderstanding the meaning of current $. To help clear this up, I'll start by referring you to the section in the user manual entitled Today's Dollars vs Future Dollars that starts on page 12. Basically, when we look at projections in terms of current (today's) dollars, we're discounting future dollars by the amount of inflation expected. Therefore, income and expenses that are expected to increase at the same rate as inflation appear to be constant values. But if the income stream is fixed (as is your pension), its value will diminish over time as you're observing. This indicates that its buying power is decreasing as a function of inflation.
Alternatively, you can look at your projections in terms of future dollars and you'll see that your income is indeed staying at the fixed level while your expenses are increasing with inflation. Whichever way you choose to look at it, you will always see divergence between income and expenses when the income is fixed and the expenses track inflation.
Stuart
Stuart, Thank you for the clarification. I understand that the purchasing power of a fixed pension will decrease with inflation. However, I was thinking that their might be two possible ways to express this. One would be to keep the pension income constant and then increase the expenses so that the difference results in the reduced purchasing power. That was what I was trying to suggest for the wish list. The other way would be to adjust income and keep expenses constant which I have been thinking is current PRC design. I will look at page 12 again, but I thought I read something years ago that indicted that PRC was adjusting income while keep expenses constant in the current view. Perhaps that is not / no longer true. I am just getting back to PRC after a few years absence.
@morlock103 As you say, there are two (and only two) ways to do this and the current design already does them. Your statement "One would be to keep the pension income constant and then increase the expenses so that the difference results in the reduced purchasing power" is what you get when you look at the projections in terms of future dollars. So, your wish has already come true. Does that make sense?
Stuart
Yes I observe that when I look at future $ and see the income streams in a way they make more sense to me. I even note that I can change the inflation rate to zero to make Future $ work like I was trying to suggest that Current $ be revised to work. The only thing I am not clear on whether expenses are or are not inflated under both scenarios. I can run some test data for expenses to answer that. Thanks for your helpful replies.
@morlock103 Expenses, in general, are inflated at the rate specified on the Home page. An exception would be your home mortgage, which is usually a fixed cost. Therefore, it would appear as a constant value in terms of future dollars but would diminish over time in terms of today's dollars. If inflation was set to zero, expenses would be the same in future and today's dollars.
Stuart
Thanks.
