Retirement Nest Egg projection?

[kv968]

The inordinately complex process of accounting for inflation is a major pain in the butt, so I find it easier to bypass it. Calculate everything in "today's dollars", and use an estimated investment return that is an amount above inflation (it assumes your investments will outpace inflation). Whatever inflation happens to end up as, I don't really care. My only concern is buying power, and that's what I work off of.

Seriously, telling me or anyone that you need $11M of "inflation-adjusted year 2050 dollars" means absolutely nothing. Estimating inflation is a wild guess, and for something so far out, it needlessly over-complicates everything. My method is just as accurate and far simpler.

If your only concern is buying power then you should definitely be concerned about inflation because that will dramatically affect it, especially over long periods of time.

I know getting present or future value of money can be a slight pain, but you have to figure in some inflation somewhere. The easiest way to do it is by doing what I guess it is you're suggesting...just knock it off the returns. For example, if the average return of the market over the years is 8% (that's not inflation adjusted), then just factor the return as being 6%, giving a reasonable 2% for inflation.

I don't think it's too hard to make a ballpark estimate of inflation. Heck, I think I'd be more in accurate in saying it'll average 2-2.5%/year over time rather than trying to say the stock market will average 8%/yr.

[kork13]

I know getting present or future value of money can be a slight pain, but you have to figure in some inflation somewhere. The easiest way to do it is by doing what I guess it is you're suggesting...just knock it off the returns. For example, if the average return of the market over the years is 8% (that's not inflation adjusted), then just factor the return as being 6%, giving a reasonable 2% for inflation.

Yep, that's exactly what I do... I normally estimate 3% for inflation, and 5% gains above inflation. The same (more or less) "average 8% annual return", but immensely simplified IMO.

[kv968]

Yep, that's exactly what I do... I normally estimate 3% for inflation, and 5% gains above inflation. The same (more or less) "average 8% annual return", but immensely simplified IMO.

Sounds good and makes it easier. As long as you factor it in somehow. Otherwise, you might be in for a rude awakening as retirement approaches.

[witchkizzle]

Sorry, must have misunderstood your original post. I didn't catch what you were doing.

I guess, since I try to adjust for it, when I see someone say they want 80k of today's dollars in retirement I automatically start saying "ok, if it's 80k of todays money, how much is the future value"

Anyway, my mistake. Obviously the $11 million number is incorrect. If you were already counting inflation, there would be no need to account for it again.