Projecting expenses in retirement just got easier for your clients, with the Retirement Expense Calculator. Based on BLS Consumer Expenditure Survey data, the Retirement Expense Calculator provides a way for you to help your clients to effectively project their expenses in retirement utilizing factors such as current income, retirement age and retirement state.
The calculation begins by converting current household income before taxes into national dollar values by using the selected current state's RPP2.
Next the income expressed in national dollar terms is leveraged by a proprietary analytical model based-upon BLS Consumer Expenditure Survey5 data to find category expense values.
Next the category expense values are updated to reflect elderly spending trends by multiplying each category's expense value by its corresponding CPI-E3 value.
Lastly each expense value is converted into the selected retirement state's dollars using a PCEPI4 ratio.
To calculate retirement expenses in future dollars, a weighted inflation factor is applied to each expense category, which is then compounded annually until retirement age.
Regional Price Parity Index (RPP)2
The RPP determines the inputted state’s purchasing power by weighing its average price level of goods and services against other states' averages.
Consumer Price Index for the Elderly (CPI-E)3
The CPI-E takes into account spending behaviors in households with a member age 62 or above. It represents an average value over a 31-year period from 1983 to 2011. 2011 was the last year data was collected.
Personal Consumption Expenditures price index (PCEPI)4
The PCE index tracks changes in price levels and consumer behaviors at the state and national level and is calculated annually.
Weighted Inflation Factor
The weighted inflation factor is calculated first by adjusting each subcategory inflation value based on the weight of the estimated subcategory expense value to the total category estimated expense value. The weighted inflation values are then averaged together to make a category weighted inflation factor. The subcategory inflation values are calculated by taking a rolling 17-year average of the percentage change in prices as published by the Bureau of Labor Statistics Consumer Price Index for All Urban Consumers report5.
For cases where the average inflation rate over the 17-year rolling period results in a value significantly higher than other categories, the period is extended to a 50-year rolling period. In other cases where a negative inflation rate is returned, a general inflation rate of 2.18% is used. The general inflation rate is calculated by averaging yearly inflation rates, as published by BLS5 over a rolling 19-year period.
Retirement expense projections are for illustrative purposes only and results may vary with each use and over time. Retirement expense projections generated by this tool are calculated by Jackson using 2016-2017 Bureau of Labor Statistics (BLS) Consumer Expenditure Survey Micro data and various measurements from the Bureau of Economic Analysis including the Regional Price Parity price index (RPP), the Consumer Price Index for the elderly (CPI-E), and the Personal Consumption Expenditures price index (PCEPI). For complete details regarding assumptions, calculations and definitions see Calculation Explanations.
Summary of Expenses
Using visually engaging charts and infographics, the client report provides an easy to understand breakdown of expenses by spending category.
Unique Client Inflation Rate
The client report emphasizes the impact of compounded inflation in retirement using an inflation rate calculated specifically for each client.
Calculation Transparency
Leveraging real expense data from the Bureau of Labor Statistics and a custom regression model, the report tailors unique numbers for each client.