Retirement planning is something that everyone avoids. It’s daunting and is probably the easiest thing on earth to procrastinate doing because it is something so far away.
I’ve read a million articles about how much money you should have saved up by the time you’re 25, 30, 40 (https://www.cnbc.com/select/savings-by-age/), “if you invest $100 in an index fund you’ll retire a millionaire (https://www.cnbc.com/2017/06/12/when-youll-become-a-millionaire-if-you-save-100-per-month.html),” etc. These are great tools to help understand the importance of compound interest, and practices that I personally use, but you look at these numbers and think: “Wow a million dollars!!!! I’m going to be so rich!” and you start imagining yourself lounging on a beach drinking a pina colada on a Wednesday… NOT SO FAST!
Inflation is the silent killer. A million dollars today is far from a million dollars in 2050. So how can you plan for retirement accurately?? I plan to live off the dividends of my portfolio so in order to get a good idea of how much my expenses will be in 2050, I use this inflation calculator to understand how much money that would be like living off today.
https://smartasset.com/investing/inflation-calculator
An inflation calculator can put things in perspective. For example, if you believe your retirement number is $1mm, that is the equivalent of ~400k today. You have to ask yourself, could you live the next 30 years with that amount of money? If so, that’s great! If not, you have to be mindful of not just savings rate, but getting as much invested as soon as possible to let compound interest do its thing!
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