**Technical **

We base our default Inflation rate and nominal rate of return on the 30-year nominal Treasury bond and the 30-year Treasury Inflation-Protected Securities (TIPS).

As of January 2022, we are using the following:

**Inflation = 2.25% and Nominal Rate of Return = 1.75%, which implies a -0.49% real rate of return.**

We determine inflation as follows (see column E in the attached spreadsheet):

Inflation = (1 + the 30-year nominal Treasury bond yield) / (1 + the 30-year Treasury Inflation-Protected Securities (TIPS) yield) – 1. We then round the calculated inflation and the 30-year nominal Treasury bond yield to the nearest ¼% to determine our default Inflation Rate and Nominal Safe Rate of Return for Regular Assets. We adjust these values if needed in early January and July of each year based on average daily yields on 30-year nominal Treasury bonds as well as 30-year TIPS in the prior months of December and June, respectively to reflect the average values of these 30-year returns over the course of the prior month. Our default assumptions assume that you are either investing exclusively in 30-year inflation-protected/indexed/adjusted bonds or that you are planning based on the conservative assumption that your assets won't earn a higher real (after-inflation) return than this long-term investment vehicle. The 30-year real return is generally positive. But it can also go negative. The returns on 30-year regular and inflation-indexed bonds are set by their market-determined prices. Assuming any other default values than those we are assuming would entail assuming bond prices that differ from those that are actually prevailing.

We urge you to adopt our default values for the rate of return and inflation. Entries that produce much higher or much lower safe real returns are not appropriately cautious and may lead you to spend, save and insure more or less than you should.

**Why it Matters**

Our Base, Maximization, and Survivor Reports assume any projections you enter as inputs will occur for sure. The world, of course, is uncertain. Our deterministic planning is called certainty-equivalent planning by economists. It's a method of dealing with uncertainty by planning based on conservative assumptions where your risk aversion determines how conservative you set your assumptions. So we assume that you are ultra risk averse and use the safest assumptions going. That's the fiduciarily responsible thing to do. If you are not ultra risk averse, you can change our default values, but keep in mind that the best practice and appropriate approach to building a deterministic plan is to use assumptions that you believe reflect certainty-equivalent planning (not historical averages) relative to your level of risk aversion. If you want to see how your plan plays out using MaxiFi Planner with your actual asset allocation of stocks, bonds, etc. you should use the Monte Carlo report to view probabilistic ranges and outcomes.

Why it matters for Social Security maximization: How are inflation rate and nominal rate of return determined and used in MMSS?.

Why it matters for MaxiFi Planner: How are inflation rate and nominal rate of return determined and used in MaxiFi?

See also: Two Approaches and Two Purposes to Planning (why be so cautious?) for a less technical guide to best practices regarding nominal rates of return.

The attached spreadsheet shows the history of these Treasury Bond and TIPS calculations.