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View Full Version : Wow! Inflation and retirement savings!


Chicago526
04-18-2006, 10:04 AM
I was playing around with a retirement calculator that tells you how much you need to save to be a millionaire by the time your retire (for me it's age 58 if I continue to save what I'm saving and average an 8% return). Anyway, it also tells you what one million dollars will be worth the year you hit the $1 million mark. Assuming 3% anual inflation, in 28 years my $1 million will only be worth $441,965 in today's dollars!!! :eek:

So if I really want to have what $1 million can buy today, I'll have have over $2 million at retirement! :eek:

crisi
04-18-2006, 10:10 AM
That's the reason in the last retirement thread, people were talking about wanting $2 or $3 million or more. That cushions you a little from inflation.

But, as we know from the last thread, people have different needs and expectations for retirement, different sources of income in retirement, as well as different abilities to save. So $3 million may not be doable, or desireable, or necessary.

Chicago526
04-18-2006, 10:28 AM
That's the reason in the last retirement thread, people were talking about wanting $2 or $3 million or more. That cushions you a little from inflation.

But, as we know from the last thread, people have different needs and expectations for retirement, different sources of income in retirement, as well as different abilities to save. So $3 million may not be doable, or desireable, or necessary.

Yeah, I thought of that. That $441,965 will get my a yearly return of $20,770 if I get 5% (in today's dollars). If I just take that 5%, after taxes my monthly "take home" is $1440 or so, and that's before my DH's pension (ha!) and any SS we may get (double ha!). So, if the pension and SS come through, we'd be okay. If not, well, we wouldn't. We could LIVE, but not as well as we might want to. I do want a very modest townhome or condo to live in for retirement, and I'll be happy to relocate to a lower cost of living area (and preferably some place warmer than northern IL!). But we may not be able to travel the way we wish to.

Now, all of that is just drawing on our yearly investment return, not drawing on any principle at all. So, if we start drawing principle, then I guess we'll be okay. The trouble with that is, what if you live another 30 or 40 years in to retirement? DH most likely won't, but I very well may, women live a loooong time in my family, I could easily live to see 100 or more!

This is making my head hurt! :headache:

spiceycat
04-18-2006, 10:49 AM
Now, all of that is just drawing on our yearly investment return, not drawing on any principle at all. So, if we start drawing principle, then I guess we'll be okay. The trouble with that is, what if you live another 30 or 40 years in to retirement? DH most likely won't, but I very well may, women live a loooong time in my family, I could easily live to see 100 or more!

This is making my head hurt! :headache:

hey that is why I am planning to work until I am 66.... Now if I retire when I am 62 or even 60 I would have more money (from SS) .... but the people in my family if they don't die in the 40's live to be in the 80's and 90's....

I don't plan to spend my 401-K - it is my emergency money....I hope to be able to live off my SS and pension....

CarolA
04-18-2006, 10:56 AM
I am from the long lived women group so I don't plan to retire early. I also think that I will work part time (My dream job is to drive the Safari Truck at AK. LOL!)

The biggest issue now with retiring before you reach your 60's is health insurance. I have a former employee who actually went back to work at Home Depot full time just to get insurance until she is Medicare eligible. It is VERY expensive for someone in thier late 50's to buy an individual policy.

spiceycat
04-18-2006, 11:05 AM
The biggest issue now with retiring before you reach your 60's is health insurance. I have a former employee who actually went back to work at Home Depot full time just to get insurance until she is Medicare eligible. It is VERY expensive for someone in thier late 50's to buy an individual policy.

there is an old friend retiring this August has more than enough money to retire now - why is waiting because at 63 1/2 he will have the 18 months until 65....when medicare will began.

cobbler
04-18-2006, 11:09 AM
Is this retirement calculator something that is online that you can play with?

Could you provide a link if so?

Thanks

spiceycat
04-18-2006, 11:20 AM
there are a couple. but I never trust their numbers always do it myself.

http://personal.fidelity.com/planning/retirement/plan_overview.shtml.cvsr?banner=12493872&immid=00049&psite=overture&crtype=search&kw=retirement_calculator

http://www.principal.com/calculators/retire.htm

http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp

here is probably one of the best
http://www.aarp.org/money/financial_planning/

but they all expect you to know the inflation (impossible for the long term), what your investment will return (again impossible for the long term)...

run the figures with 3% inflation and 5% return.... then run it with 9% inflation (remember we have had this) and 6% return - big difference....

Chicago526
04-18-2006, 12:19 PM
but they all expect you to know the inflation (impossible for the long term), what your investment will return (again impossible for the long term)...

run the figures with 3% inflation and 5% return.... then run it with 9% inflation (remember we have had this) and 6% return - big difference....

Aren't the historical averages about 3% a year for inflation, and 8% on the stock market? That's what I've been basing my numbers on.

ukwildcat
04-18-2006, 12:28 PM
Mutual Funds average 10-12% in returns over the long run. And by long run I mean 5 to 10 years.

And I would be careful "hoping" to live off of SS and pensions. Look at what is happening to GM.

I hope I am wrong for everybody's sake, but at the rate things are going I don't expect SS or even medicare to be around when I retire.

Julia M
04-18-2006, 12:35 PM
I know I'm a bit nervous about the whole inflation thing. My dh figures we'll have 75% of our current (this years income) at retirement. But, by the time we retire (10-15 years), that percentage will be lower.

On the other hand, dh is forecasting worst case scenario, since he's not counting in social security, my pension or my 401K. He's also not counting in any inheritance, which while I won't expect it, is somewhat likely.

We also live within our income now, have a house that will be paid off in 10 years and have extremely high kid related expenses that will go away when the kids are grown.

My dh has a great pension, very well funded, and he contributes to his 401 (maxing out contributions).

So, I'm to the point of just closing my eyes and saying I'll deal with it closer to the time. It seems overwhelming at times trying to figure all this stuff out.

Julia

Chicago526
04-18-2006, 12:41 PM
Mutual Funds average 10-12% in returns over the long run. And by long run I mean 5 to 10 years.

And I would be careful "hoping" to live off of SS and pensions. Look at what is happening to GM.

I hope I am wrong for everybody's sake, but at the rate things are going I don't expect SS or even medicare to be around when I retire.

10% to 12%? Really? I've been figuring 8% and thought that was being optomistic!

I'm not counting on SS, but I'm not discounting it either. Same with Medicare. I figure both programs won't be in the current form by the time I retire, but something will be there. Maybe it will be better, maybe about the same, maybe worse. But I don't have a crystal ball, and neither does anyone else. You can't plan for it, one way or the other. So, all I'm going to do is save as much as I reasonablely can for retirement. It will just have to be enough.

dvcgirl
04-18-2006, 01:23 PM
I was playing around with a retirement calculator that tells you how much you need to save to be a millionaire by the time your retire (for me it's age 58 if I continue to save what I'm saving and average an 8% return). Anyway, it also tells you what one million dollars will be worth the year you hit the $1 million mark. Assuming 3% anual inflation, in 28 years my $1 million will only be worth $441,965 in today's dollars!!! :eek:

So if I really want to have what $1 million can buy today, I'll have have over $2 million at retirement! :eek:

This is why when people talk about needing millions of dollars in retirement it shouldn't be viewed as crazy, or unnecessary. We have some recently retired people here who always state that they have saved far less than millions, and can live on practically nothing....but what about 20-30 years from now? Will they feel the same then? Look at the price of gas for example. It was less than $1 a gallon only *7* years ago....now we're at 3 bucks. Think about retirees who are in their 80s on up, people who have been retired for 20-30 years. They are the ones who feel inflation the most, especially if they are on a fixed income like SS or SS plus a small pension. You need 1.86 million dollars today to buy what 1 million would by in 1986. And I use 4% inflation in my retirement calculations. I believe 3% is a little low.....

crisi
04-18-2006, 01:59 PM
8% is a better number. It depends on which 10 years you look at. Any 10 years that includes the 1990s will have a higher return, but most economists now see the 1990s "new economy" as an abberation. I'd never PLAN on getting more than a 8% return. And I'd never PLAN on less than 4% inflation.

disneymom3
04-18-2006, 02:53 PM
The calculator for retirement funds at DHs work does a 7% assumption. He works for a bank and I like taking the conservative route, so that is what we are going with. Through a period of unemployment and underemployment we pretty much devastated our retirement and every other kind of savings. We recently used the retirement calculator they have on their intranet site and I was shocked at how well we are doing now. We are a lot further along than I expected to be at this point. Still not where we need to be, but we are making more progress than I thought.

dvcgirl
04-18-2006, 03:57 PM
8% is a better number. It depends on which 10 years you look at. Any 10 years that includes the 1990s will have a higher return, but most economists now see the 1990s "new economy" as an abberation. I'd never PLAN on getting more than a 8% return. And I'd never PLAN on less than 4% inflation.


Excellent point. The 12% number drives me nuts, and it's the one that Dave Ramsey always uses in all of his discussions....as if it's a given. 8% is a fair number, we actually use 7% to be conservative. And we also use 4% for inflation.

disneysteve
04-18-2006, 07:47 PM
Excellent point. The 12% number drives me nuts, and it's the one that Dave Ramsey always uses in all of his discussions....as if it's a given. 8% is a fair number, we actually use 7% to be conservative. And we also use 4% for inflation.
The problem with the 12%, or the 10%, is that it assumes that you will stay 100% invested in stocks. That certainly wouldn't be a prudent investment strategy, especially as you get closer and closer to retirement.

Even though the stock market may average 10-12%, a balanced portfolio might average more like 8%. And as your portfolio becomes more heavily weighted with bonds and less heavy with stocks, that average moves toward the lower end, so using 6% or, at most, 7% in your retirement projections makes a lot more sense.