Are you content with your current income? Do you have extra money to spare at the end of the month? Have you given any thought to what your yearly income should be at retirement?
No matter how much money we all seem to make, it never seems like it’s enough. There are always bills to pay and unforeseen expenses that pop up. The amount of income we had last year seemed to get us farther than it did this year. Well, this could be the case. All due to a pesky little thing called inflation.
If you made $40,000 last year and you did not get a raise coming into this year, but inflation was 3 %, guess what? You actually make 3% less this year than you did last year. Rather than bringing in $40,000, you’re money will only buy you about $38,800 worth of stuff compared to last year.
How Does This Relate to Retirement?
The average inflation rate in the United States is approximately 3.38% (calculated from 1914-2010). That means that each year, our current money is worth 3.38% less than it was the year before (by the way, if you have your money in a CD that’s earning 1.5%, you are actually losing money…).
If our money is effectively worth less each year, that means that it will take more money to continue to live the same lifestyle as yesterday! So how much money will you really need per year for retirement??
Let’s say you will be completely debt-free before your retirement, how much money could you comfortably survive on today? $25,000 per year? $30,000? $40,000? Let’s say you could live a comfortable lifestyle on $30,000 per year, but how much money will that effectively be after 30 years of inflation? Would you believe me if I told you it equates to $81,323.69!!
That’s right! In order to maintain a $30,000 lifestyle 30 years from now, you’ll actually have to spend $81,323.69! Make sure to factor in inflation when you’re planning that retirement date!
For the rest of you that are wondering about a different value of money or a different time frame, here’s a table below that might help you out!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.