Planning Assumptions for 2025

• Demographics

  • You live through age 100, unless otherwise planned for

    • The probability that you live well into your 90s may be higher than you think.

• Rates of Return

  • Real (inflation-adjusted) rate on all financial assets is 0.90%

    • I use the 10-year historical average for 30-year US Treasury Inflation-Protected Bonds (TIPS).

    • I use Monte Carlo Simulations, with adjusted historical stock market returns since 1926, to explore the impacts of holding stock in your investments.

  • Inflation is 2.03%

    • I use the 10-year historical average for the 30-year US Breakeven Inflation Rate.

• Housing

  • You maintain your home(s) for life, unless otherwise planned for

  • Annual major home maintenance is 2% of dwelling’s estimated replacement cost

    • 2% is my estimate of the weighted-average depreciation rate for the major components of a residential home.

    • I use the dwelling coverage (or Coverage A) value from your homeowners insurance to approximate the dwelling’s replacement cost.

  • Real appreciation on real estate is 0.59%

    • I use the average annual real growth rate of US Home Prices since 1890.

• Social Security

  • Social Security payroll taxes increase by 2.01 percentage points to 14.41% and benefits decrease by 12.30% in 2035

    • I use the Annual Social Security Report of the Board of Trustees to estimate the size and timing of future changes (pp 5-6).

    • I assume half of the long-run funding gap for Social Security is closed by increasing the Social Security payroll tax and half by cutting benefits, equally for all beneficiaries. I assume such changes occur in the year the Trust Funds are projected to be depleted.

• Medicare

  • Medicare Part A payroll taxes increase by 0.35 percentage points to 3.25% in 2035

    • I use the Annual Medicare Report of the Board of Trustees to estimate the increase in the Medicare payroll tax needed to close the long-run funding gap (p 8).

    • I assume the change occurs at the same time changes are implemented to Social Security (in practice, it may be sooner).

  • Medicare Part B premiums increase at 3.70% above inflation

    • I use the Annual Medicare Report of the Board of Trustees to estimate the real growth rate in Part B premiums, necessary to sustainably fund the program (pp 198 & 14).

  • Medicare Supplement (Medigap) and Part D premiums total $4K/yr/person, from 65 on, unless otherwise planned for

Here is a video where I walk through each of the assumptions I used back in 2020