A Deep Dive into Inflation and Return Assumptions in Boldin’s Software

If you've run your numbers in Boldin’s software and feel either ecstatic about your multi-million dollar ending balance or completely freaked out that you haven't saved enough, the truth is often hidden in the assumptions. As the old saying goes, "garbage in, garbage out." We need to make sure you're thinking about your plan the right way. I show visuals of these default settings in Boldin in my YouTube video about this topic.

1. The Critical Choice: Today’s Dollars vs. Future Dollars

This is the first place where people get tripped up. When you view projections in Future Dollars, Boldin does not account for inflation. When you see an ending balance of "$8.8 million" in 30 years, that figure isn't adjusted for purchasing power.

• Future Dollars: Shows a larger number that will be less intuitive in terms of real-world purchasing power.

• Today's Dollars: Shows the actual purchasing power of your money at the end of the plan, which is what you need for realistic planning.

A quick switch from Future Dollars to Today’s Dollars can drastically change your perspective, reinforcing the need to understand these basic settings.

2. The Inflation Calculation Flaw: Averaging vs. Compounding

When reviewing Boldin's assumptions for general inflation (a critical number), I found a significant discrepancy in the methodology.

I used data from sources like the Bureau of Labor Statistics and FRED (Federal Reserve Economic Data) to replicate the historical inflation rate, which was around 2.62% (compounded annual rate). However, the planning software used 2.54%.

I eventually confirmed the discrepancy: the software was using the average return of the annual COLA (Cost of Living Adjustment) data from 1994 through 2024, not the compounded annual rate.

Why This Matters (The Compounding Trap)

Using a simple average is generally not the best approach for financial data because compounding makes numbers act very differently.

• A Simple Example: If you have returns of -30%, +10%, and +20% over three years, the simple average is 0%. However, if you calculate the actual return on a $1 investment, you end up with less than your original starting balance—a parasitic loss due to compounding.

While the difference in the final dollar amount for inflation was small in this specific case ($212 vs. $216 on a $100 starting balance), relying on simple averages can introduce an inherent inaccuracy that undermines the model's reliability, especially over long time horizons.

3. The Unexplained Return Rate Assumption

Another area for concern lies in Boldin’s assumptions for investment returns. I found the disclosures here to be equally lacking.

The software provided an average return rate of 8.08% but failed to disclose where that data came from. I couldn't find the supporting data set anywhere on their site.

• Susceptibility to Skew: Since the inflation data used an average instead of a compounded rate, we can infer the returns data likely does the same. This makes the figure highly susceptible to being influenced by large outliers in either direction.

• Lack of Trust: Without knowing the data set (is it 30 years? 50 years? What mix of assets?), it is impossible to verify if the 8.08% figure is relevant to your investment strategy or risk level.

Conclusion: Trust, Verify, and Seek a Second Opinion

The simple act of switching between Today’s Dollars versus Future Dollars can drastically alter a plan's outcome. When you combine that with nuanced errors in fundamental assumptions like inflation and return rates, the result can be a plan that is either overly optimistic or unduly pessimistic.

If you are feeling either ecstatic or down in the dumps about your retirement projection, the issue might not be your savings rate—it might be Boldin’s software's settings.

It’s always wise to have a fresh set of eyes review your plan to spot these subtle errors that can be easily overlooked.

At Barrett FP LLC, we offer expert financial planning on an hourly basis, focused entirely on helping you achieve your goals.

Learn more about how we can help you stress-test your plan's assumptions and see if we're a good fit.