Milton
Thinks s/he gets paid by the post
- Joined
- Apr 18, 2007
- Messages
- 2,360
In an article entitled "Will Your Retirement Fund Lose Steam? [http://finance.yahoo.com/focus-reti...-Fund-Lose-Steam?mod=retirement-post-spending], the author correctly makes the point that inflation gradually but significantly erodes the purchasing power afforded by a non-indexed income stream. But some of the math seems wrong. Does this make sense to you?
It seems plausible that after 20 years, inflation averaging 3% p.a. will require an income of $108,367. But $60,000 x 1.302 = (only) $78,120, right?
Let's say you're spending $60,000 this year and inflation runs three percent a year. Well, that means that to maintain the same buying power, you would need $61,800 next year ($60,000 + [1 x the inflation rate], or $60,000 x. 1.03). And the year after that you would need $63,654 ($60,000 x 1.03 x 1.03, or $60,000 x 1.032). And in 20 years, you would need $108,367 ($60,000 x. 1.3020)
It seems plausible that after 20 years, inflation averaging 3% p.a. will require an income of $108,367. But $60,000 x 1.302 = (only) $78,120, right?