Talk to me about inflation

[NetSkyBlue]

I'm thinking about how much money I'll need in retirement, and trying to take inflation into account, I'm just not quite sure how it works. I've heard 3% a lot.

Right now, my after-tax take home pay from my day job is around $24000. This pays the bills, and I am relying on part time income from 2 other jobs to pay down debt and save.

I'd like to be out of debt by the time I retire, including having a mortgage paid off. If this is the case, theoretically I could survive off of the future equivalent of my today's take home pay (though I'd like to be a bit more comfortable).

Am I doing the math right, if assuming 3% per year inflation, that I will need over $71K a year in 2048 when I'm 65 to maintain my current standard of living, and that will be up to over $129k a year in 2068, when I'm 85?

I feel like I've got to be doing something wrong.

[bjl584]

Annual Inflation Rate Chart

The current rate is around 3.5%.

[bjl584]

Investment-Retirement-Inflation Analysis Calculator

Try plugging your numbers into this calculator.

[NetSkyBlue]

I'm getting page not found on both of those links.

Nevermind, I just had a network access error. Something with our new work server.

[bjl584]

I'm getting page not found on both of those links.

The links work for me. Not sure why you are having trouble. Try going to this site address then. Investment-Retirement-Inflation Analysis Calculator.

[bjl584]

OK. If you go to Bloomberg's webpage they have several retirement calculators that you can play around with as well.

Let me know if you still need more help.

[snafu]

As someone further along the inflation/retirement savings continuum, I suggest concentrating on a well thought out, monitored retirement investment program. Most important of all is to start immediately, or at the very least your very next pay. Take advantage of any employer contribution + Pay Yourself First contribution. Since you are young you can afford reasonable risk and use time to compound value. The market is nuts this month but the wonders of compounding, reinvesting dividends and t-i-m-e allows me to look at the monthly statements and feel confident about retirement.

Before fretting about paying off a mortgage, look at the tax benefit you may derive.

[YLTL_Dan]

I'd like to be out of debt by the time I retire, including having a mortgage paid off. If this is the case, theoretically I could survive off of the future equivalent of my today's take home pay (though I'd like to be a bit more comfortable).

Paying off the mortgage is a great strategy and something I'm going for. My parents have always been blue collar (made ~$45k combined) and were recently able to pay off their house before retirement. They're retirement spending is probably 50% of their pre-retirement spending; I've always heard 70% is a good number to use. You also don't have to save for retirement during retirement!

[bennkar]

You're worried about 37 years down the road??? So much could change by then its not even funny. 37 years ago there was no 401(k) accounts, who knows what will happen 37 years hence. Just make a good savings plan, invest in decent stocks / funds / or whatever is available to you, and re-evaluate in a few years once you have saved some money. If inflation causes expenses to go up, you can figure your investments worth will go up too.

My advice is make a decent plan and go with it. Don't stress about life that far away as long as you have a reasonable plan now.

[greenskeeper]

NetSkyBlue

precious metals are a good hedge against inflation. buy physical holdings if possible.

since the funny money production has increased so has my purchase of physical gold and silver.

I still invest in 401k, etc but the % per month towards these metals has gone up.

Also there is no record if you physically hold the metals yourself, so the govt can keep its hands off!

[jpg7n16]

Also there is no record if you physically hold the metals yourself, so the govt can keep its hands off!

But if you sell it, there is one. And there is a gain to report as income.

The same argument could be made about holding stock certificates. No tax as long as you hold them!

Publication 550 (2010), Investment Income and Expenses

Gold, silver, stamps, coins, gems, etc. These are capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or trade generally is a capital gain or loss.

[kv968]

Am I doing the math right, if assuming 3% per year inflation, that I will need over $71K a year in 2048 when I'm 65 to maintain my current standard of living, and that will be up to over $129k a year in 2068, when I'm 85?

I feel like I've got to be doing something wrong.

Nope you've figured it out right. That's what 24k will be worth in today's dollars with 3% compounded inflation.

Like others have said, that's all the more reason to setup a good retirement plan and start putting money towards it. Paying down the mortgage is a good way to go, but you have to also save money. Having no mortgage in retirement is great but you still need money to live on.

[greenskeeper]

But if you sell it, there is one. And there is a gain to report as income.

The same argument could be made about holding stock certificates. No tax as long as you hold them!

Publication 550 (2010), Investment Income and Expenses

sell small amounts for cash, plenty of places to do that.

Of course if you had to sell a large amount to a dealer there would be record.

[dojo]

As greenskeeper mentioned, I'm more interested in gold right now. The 'physical' gold, meaning bullion (coins) mostly. Right now I need to work on my savings a little, since spending months in the US (I'm from Europe) kinda cost us a little. And now we're getting ready to go to Spain for one month or so, another 'obstacle' in placing most money into savings. not that I actually mind visiting this country though