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Inflation and Your Retirement Plan
By JLP | November 30, 2005
I’ve been working my way through Lee Eisenberg’s The Number
The book got me to thinking about how one should look at their retirement needs. Let’s say that you are now 40 and are currently making $100,000 per year. You are living comfortably and are pretty certain that you would like your lifestyle to remain basically the same when you retire in 20 years. The only problem with that is that assuming a 3.5% inflation rate over the next twenty years, $100,000 will only be worth $50,000. In other words, you will need $198,979 in income to equal what $100,000 is worth today.
Take a look at the chart below. In the left hand column is the number of years until retirement. Assuming the different inflation rates, the grid shows you how much you might need in income to equal $100,000 in today’s dollars. Of course, the longer you have until retirement, the more income you will need.
|
Expected Inflation Rate |
||||
|
No. of Yrs. Until |
3.0% |
3.5% |
4.0% |
5.0% |
|
10 |
$134,392 |
$141,060 |
$148,024 |
$162,889 |
|
15 |
$155,797 |
$167,535 |
$180,094 |
$207,893 |
|
20 |
$180,611 |
$198,979 |
$219,112 |
$265,330 |
|
25 |
$209,378 |
$236,324 |
$266,584 |
$338,635 |
|
30 |
$242,726 |
$280,679 |
$324,340 |
$432,194 |
Next time, we’ll discuss what kind of Number you will need in order to fund your desired income level.
Topics: Retirement Planning, The Number |