There is data on inflation and the S&P 500 returns at
http://aida.econ.yale.edu/~shiller/data.htm , a site of Robert Shiller
(author of the good book "Irrational Exuberance"). Historical bond
yields are at a Federal Reserve web site,
http://www.federalreserve.gov/releases/h15/data.htm , from which it is
possible to compute approximate bond returns. I have seen research that
stock market returns are negatively correlated to inflation surprises.

I would use a language like Fortran or C++ to do a simulation rather
than Excel, which is slower and less reliable for serious numerical
work. One call DLL's written in those languages from Excel.

I don't know whether you're aware of this, but a number of web sites are
available for guidance on withdrawal planning, based on stock market and
bond returns since around 1927, and often using Monte Carlo simulation.
They tend to compute the probability of having money left over after Y
years if one withdraws at rate X starting with A% stock and B% bonds in
one's portfolio.

For example, see:

1.
http://www.aaii.com/promo/mstar/feature.shtml , especially Table 3, which
is adjusted for inflation.

2.
http://www.tiaa-crefinstitute.org/Pu...fs/pa12-01.pdf

3.
Vanguard's calculator that yields results like those above. Click on the
"Vanguard Lifetime Spending Analyzer" link at
http://flagship4.vanguard.com/VGApp/...ardviews/jsp/V
anViewsNCArticle.jsp?chunk=/freshness/News_and_Views/news_ALL_retanalyzer_1
2162004_ALL.html

4.
The Trinity Study results. Scroll down to the links to the four tables.
http://www.retirement-income.net/run_out.htm . Make sure you're aware of
when the table displayed takes into account inflation.


"Randy" <john.public1[at]comcast.net> wrote
- quote -

I am developing a Monte Carlo simulation model in Excel to do some
withdrawal planning for a family member's retirement. As part of this
model, I am randomly generating inflation rates, stock market returns,
and bond market returns. Everything is working fine, but it occurred
to me that the two market returns would have to be correlated with
inflation, at least to some extent.

Does anybody know what the correlation coefficients are between
inflation (CPI index) and the overall stock market (Wilshire 5000) and
also between inflation (CPI index) and the overall bond market (Lehman
Brothers Aggregate Index or something similar). I'm looking at a
long-term history, say 1926 - Present.

I realize that these values might not be at everybody's fingertips (I
know that I can't find them), so alternatively, does anybody have any
suggestions as to where to find them (e.g. ValueLine, Ibbotson, etc.)
Thanks in advance,
Randy Eastland