Inflation touches almost every part of Income Lab. This article explains the basic ways that inflation is modeled across the platform and answers questions like:

• What inflation rate is assumed on the platform?
• Is inflation static or variable?
• How can I adjust assumed inflation rates on the platform?

Variable Inflation Rates

The core analytics of Income Lab treat inflation as variable. This means that, instead of assuming inflation is, was, or will remain at a static level (e.g., 3% per year), plan analysis assumes that inflation will vary. This means that the platform takes into account the risk that inflation could be higher or lower in the future.

The specifics of these variations differ slightly based on the analysis method.

• Traditional and Regime-Based Monte Carlo both use firm- or user-entered average annual inflation rate and standard deviation assumptions. (Defaults for these assumptions are created using historical averages. For example, the inflation assumptions for Traditional Monte Carlo are based on inflation over the preceding 50 years.)
• The historical analysis method uses actual historical inflation as a model, based on CPI-U. These values are updated monthly.

Constant Inflation Rates

In parts of the application where variable inflation would be inappropriate or confusing, Income Lab uses constant inflation rates. Examples include nominal versions of the Income Sourcing, Expense Details, and Tax graphs, as well as Life Hub and nominal views in the Tax Lab. In these cases, values reflect steady inflation.

• Traditional Monte Carlo: Inflation rate is the user-entered average inflation rate from the Capital Market Assumptions section of user Settings.
• Regime-Based Monte Carlo: Inflation rate is the user-entered near-term average inflation assumption for the section of the displayed data that is within the user-defined near-term period. Inflation rate for periods beyond the near-term reflects the long-term average inflation assumption.
• Historical: Inflation rate reflects the spread between the average yields of 30-year Treasuries and TIPS in the preceding month. For example, in April 2023, this was approximately 2.24% (average 30-year Treasury yield: 3.69%; average 30-year TIPS yield: 1.45%).

Adjusting Inflation Assumptions

If you are using Traditional or Regime-Based Monte Carlo for your analysis method, you can adjust inflation assumptions in the Capital Market Assumptions section of user Settings.