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I look forward to FI *and* RE, and try to do what I can to get us there. I've been running some retirement account numbers but am not entirely certain I'm going about this the right way.

Say we've got 30 years to go. Let's use some round numbers, and assume (for the purposes of this exercise) that we won't add another penny.

$100K @ 8% for 30 years would give us 1,006,265 if my calculations are correct.
$200K @ 8% for 30 years = 2,012,531
$300K @ 8% for 30 years = 3,018,797
$400K @ 8% for 30 years = 4,025,062
$500K @ 8% for 30 years = 5,031,328

$100K @ 10% for 30 years would give us 1,744,940 if my calculations are correct.
$200K @ 10% for 30 years = 3,489,880
$300K @ 10% for 30 years = 5,234,820
$400K @ 10% for 30 years = 6,979,760
$500K @ 10% for 30 years = 8,724,701

Of course, now I've got to see what kind of a bite inflation will take out of this. How would I go about running that calculation?

Thanks. --AF
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<<Of course, now I've got to see what kind of a bite inflation will take out of this. How would I go about running that calculation?

Thanks. --AF
>>


First, get out your ouiji board.....



Seattle Pioneer
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Historically, inflation runs about 3-4%. So you could rerun your numbers at 4 & 6% rate of return.

However, inflation is a personal thing. For example, the cost of milk has gone up about 40-50% this past year. But if you're lactose intolerant, you're not buying milk anyway. Cost of college up 25% but you don't have kids/nieces/nephews to take care of, no problem.

JLC
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>> However, inflation is a personal thing. For example, the cost of milk has gone up about 40-50% this past year. But if you're lactose intolerant, you're not buying milk anyway. Cost of college up 25% but you don't have kids/nieces/nephews to take care of, no problem. <<

This is true...but I don't know *anyone* who is experiencing the low rate of inflation the government is reporting.

#29
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>> However, inflation is a personal thing. For example, the cost of milk has gone up about 40-50% this past year. But if you're lactose intolerant, you're not buying milk anyway. Cost of college up 25% but you don't have kids/nieces/nephews to take care of, no problem. <<

This is true...but I don't know *anyone* who is experiencing the low rate of inflation the government is reporting.

#29


There is a distinction between inflation and increases in the cost of living.

For example, the average price of a house has increased pretty steadily over the last couple of decades, but so has the size.

I paid pretty much the same amount for the computer that I bought a few months ago as for the one that I bought back in 1999, but the difference between the two computers is pretty huge.

I don't envy the job of economists when it comes to measuring inflation. I don't think there is a way to do it without getting some kind of criticism.
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There is a distinction between inflation and increases in the cost of living.

For example, the average price of a house has increased pretty steadily over the last couple of decades, but so has the size.



Good point. There's monetary inflation, and there's "lifestyle inflation". Fifteen years ago, hardly anybody paid for cellular phone service and Internet access. Now it's a routine part of life to pay $50 per month for each of those. Thirty years ago, air-conditioned homes were the exception, but that cost for electricity is now normal. Fifty years ago, hardly anybody paid auto insurance, until it became a government-mandated racket.

Fifty years from now, will we be paying flying car insurance? Mass transit teleportation tickets? Service fees for neural implant logon to the noumenal cyberunification mentality? Vacations to Disneyworld Luna or Mars? Maintenance costs for bloodstream nanorobotics? Who knows, but you can't go wrong by saving now... :)

- Erik
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Looking just at the math aspect of things, in order to get the present value of that future amount of money you calculated, you'd divide that figure by (1 + the inflation rate)^ number of years

So $1,000,000 30 years from now assuming an annualized 3% inflation rate would be:

$1,000,000/(1.03)^30 = $411,987.00

I always dislike doing that calculation. :)

Mike
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>>
Fifty years from now, will we be paying flying car insurance? Mass transit teleportation tickets? Service fees for neural implant logon to the noumenal cyberunification mentality? Vacations to Disneyworld Luna or Mars? Maintenance costs for bloodstream nanorobotics? Who knows, but you can't go wrong by saving now... :)
>>

Or, in the less sci-fi vein:

* Carbon taxes
* Routine medical care and other assorted expenses in the very expensive but easily achievable decades of life past seventy
* Power and cooling bills reflective of the fact that your house is as wired as some late twentieth century data centers.  (And I don't even believe in Peak Oil.)
* Higher income taxes to pay for all the seniors who weren't as prescient as you were
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Although you can choose any rate of inflation and return, I prefer to use rates based on some actual historical numbers. The latest 'history' I have available for both S&P500 returns and inflation are for the period 1961-2006. I calculate the average annual inflation rate for that time period at 4.3%, and the average annual S&P500 return at 8.46%, for a net 'real' return of 4.17%. More conservative folks than I use 2%, and there are lots of folks who use more than 4.17% (i.e. 8%-3% = 5%). If that happens, I'll be thrilled, but I prefer a more conservative number. YMMV,

2old
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Have you checked out Intercst's excel spreadsheet? It's got historical returns and inflation built into it.

http://www.retireearlyhomepage.com/software.html

Vickifool
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