All the Numbers

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Inflation and today's dollars

Prices rise, so a dollar in thirty years buys less than a dollar now. A projection that shows $2,000,000 in 2056 does not say what that sum is worth in purchasing power. The plan can therefore show every figure in two ways: nominal, the amount of money at that date, and in today's dollars, the same amount restated at the prices of the year the plan starts.

The rules

  • Default inflation: 2.5% a year. It is half of Canada's historical inflation from 1900 to 2025 (3.0%) and half of the Bank of Canada's 2% target, from PWL Capital's 2026 planning assumptions.
  • It is paired with the default investment return from the same source, so the return after inflation is the one the source intends: 6.35% less 2.5%, about 3.8%. See expected returns.

The formula

amount in today's dollars = future amount ÷ (1 + inflation) ^ years

The years are whole years from the start of the plan to the year-end shown. At 2.5%, a year-end amount 30 years out is divided by 1.025^30, about 2.09.

What the engine does

  • Uses one inflation rate for the plan. By default it raises living costs, pay, rent and carrying costs each year, and moves every tax threshold with it, so brackets do not shrink in real terms; see bracket indexation.
  • Leaves investment returns and home price growth at their own nominal rates.
  • Divides by the same factor everywhere, so a figure in today's dollars matches across pages. The dashboard, Scenarios and Simulation each have a switch that shows either version.

What it deliberately does not

  • It does not vary inflation by year. In Monte Carlo inflation stays fixed while returns and home prices vary.
  • It does not use different rates for different costs, such as housing, food or tuition. One rate applies to everything that grows.
  • It does not forecast inflation. The rate is an assumption, and projected CPP, OAS and GIS are indexed once a year at the same rate rather than by their own published schedules.

Connected to

  • "Monte Carlo: many market histories" · The Simulation page runs the plan 500 times with investment returns and home prices drawn at random each year, then shows the spread of net worth and how many runs finish, borrow or run out of money.
  • Events outside the plan's horizon · An event, purchase or sale dated before the plan starts or after it ends is ignored rather than clamped into range, and the plan says which one it dropped.
  • Expected returns and fees · The default return is 6.35% a year, nominal and net of fees, for an 80/20 stock and bond portfolio. It is an expected long-run average, not a forecast, and an account's own rate replaces it.
  • Home prices over time · A home's value is projected by growing it at one assumed rate, 3.5% a year by default, which is PWL Capital's 1% real return on a house plus 2.5% inflation. It is an editable assumption, not a forecast, and the Simulation view shows how widely a real home's value varies around it.
  • Net worth, as the plan counts it · Net worth is everything the plan holds (cash, investment and registered accounts, homes at market value) minus mortgages, credit lines, debts and tax owing. It is not reduced for selling costs or for tax on money still in an RRSP.
  • Old Age Security · A monthly pension paid to most Canadians from 65, based on years lived in Canada after 18. It can be deferred for a permanent increase, rises 10% at 75 and is partly repaid through a recovery tax at high incomes.
  • Tax brackets after 2026 are projected, not published · Every year after 2026 is taxed with the 2026 brackets, personal amounts, credits and CPP/EI ceilings grown at the plan's inflation rate. That is how CRA indexes them, but the real figures are announced each fall and will differ.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.
  • Which assumption matters most · The sensitivity chart moves one assumption at a time, down and up by a fixed step, and ranks them by how much the final net worth in today's dollars changes. Inflation is often the largest bar because it moves much more than one number.

Sources