Not too long ago, I was talking with my neighbor. He is in the process of trying to sell his house as he has decided to move to a retirement home. During the course of our conversation we started talking about careers. He was an engineer in the chemicals business. I told him that chemical companies are paying chemical engineers fresh out of college over $86,000 per year. He nearly fell over when he heard that. Then he told me that when he retired in 1985, he was making $52,000 per year.
Sure, $52,000 per year doesn’t sound like much when comparing it to $86,000. However, we have to keep in mind that he was making $52,000 per year 21 years ago. What would a salary like that be equivalent to today? Take a look at the graphic below:
What this shows us is that had this guy been able to keep working through the years and recieved cost-of-living raises each year, he would have been making nearly $97,000 in 2006. Since he was in the engineering field, which seems to be a hot field lately, it is likely that he could have seen salary increases of 5% per year over the last 21 years, which would have him making over $144,000 in 2006.
What does this tell us? Inflation is sneaky! That 3% – 3.5% per year really adds up over the years. Here’s a look at what someone making $86,000 per year now could be making in 21 years:
Pretty amazing isn’t it? Unfortunately, the prices of goods and services will be rising right along with those salary increases.
If you are interested in the math, you can calculate these numbers on your own if you use the following formula:
So, a person making $86,000 per year now, who expects their salary to rise 3% per year for 21 years, can insert this information into the formula to get the following equation:
See how easy that was?
If you want to go back in time and see what a salary today would have been 21 years ago, you can use this formula:
Using the same numbers as above: