How do you account for inflation when setting your magic number?
The amount I would expect to spend if I retire today will be less than what I would expect to spend next year if I hold everything constant except inflation.
The rule of thumb seems to be calculate what you expect to need/spend and you should have investments of 25 times that to limit your withdrawal to 4%. So if I'm currently expecting to spend $100K today, I should have $2.5M in investments.
If I wait a year and expect to spend $104K ($100K + 4% inflation), then I should have $2.6M in investments.
Does the 4% withdrawal rule take into consideration inflation so that next year my spending could increase to $100K + inflation?
The amount I would expect to spend if I retire today will be less than what I would expect to spend next year if I hold everything constant except inflation.
The rule of thumb seems to be calculate what you expect to need/spend and you should have investments of 25 times that to limit your withdrawal to 4%. So if I'm currently expecting to spend $100K today, I should have $2.5M in investments.
If I wait a year and expect to spend $104K ($100K + 4% inflation), then I should have $2.6M in investments.
Does the 4% withdrawal rule take into consideration inflation so that next year my spending could increase to $100K + inflation?