The software accounts for inflation by removing it from the cashflow modelling, except where the cost or values are projected to rise at a rate higher than inflation. These specific values can be tailored to suit your projections. We have included a base assumption as indicated by the Reserve Bank of New Zealand on their data from the last 30 years.

Inflation – Income & Expenses
To keep things simple for clients, inflation is stripped out of everything in the software – so all the figures are in ‘todays’ dollars. That means we are assuming that income and expenses would rise with inflation. If you are making changes to income, this would be for larger increases/decreases due to change of role, transition to maternity leave etc, rather than the gradual increases people receive to keep their income in line with inflation. This is the same for expenses, where you are selecting a ‘Life Stage Adjustment’ this is what the equivalent spending is in today’s value, as we assume this would track with inflation.

Inflation – Capital Gain & Investment Returns
Where we do see increases in the software, is for items that increase at a rate faster than inflation. This is why for ‘Capital Gain’ you can enter the gross figure, and the software will reduce that by our inflation assumption of 2.2% (you can change this on the ‘Mortgage and Projects’ page, under ‘Long-term Property Assumptions’). It’s also why you need to enter a ‘Real Return’ for any investments, ensuring you reduce any projected returns to remove inflation.

Investment Properties – Rental Increases
In terms of Rental Income for Investment Properties, this is calculated based on both the Capital Gain and the Gross Yield. For example, where a $1,000,000 property had a 5% Capital Gain (2.8% with inflation removed) and a 4% yield (rent of $769 per week). In the next year, Planolitix would increase the property value by 2.8% (to $1,028,000) and then 4% of that would become the new rent ($791 per week). This runs on the assumption that a property’s yield will remain fairly stable – but you can also override this if you want to model a reduction in the yield over time.

Base Calculations
The software anchors all calculations around the age of ‘Person 1’, unless a field is specifically relevant to ‘Person 2’ e.g. Investments.

Surplus Funds & Personal Debt Assumptions
The default assumption is that 90% of surplus funds are first used for rapid mortgage repayment, and once all personal debt has been repaid, are then added to long-term savings. This is illustrated in the ‘Lifetime Cashflows’ graph.

Reborrowing
When this occurs, then any ‘Project Funding’ will first be funded from savings (this is also true for first home purchases).

Investment Contributions
If there are specific investments that are separate to KiwiSaver, these can be added to long-term savings immediately in the ‘Lifetime Cashflows’ or withdrawn later and be brought back at a future age.

Inflation
For ease of use, Planolitix has allowed for any effect of inflation so that all numbers can be entered in ‘today’s dollars’ e.g. A million dollars at a future retirement date has the same ‘value’ as a million dollars today. Any future income or expenses are treated the same way.

Anything that is expected to rise above inflation, such as housing values or investment returns, are pre-set at sensible levels based on RBNZ data and/or Govt guidelines.

Note: Due to the nature of cashflow modelling, gross or nominal figures have a significant impact when forecast over the very long-term, and can skew an illustration to where it is no longer relevant or useful. When entering an assumption for an investment return, it should be expressed as ‘after inflation’ e.g. Where inflation is 2% pa, a 5% after tax return should be entered as 3% pa.