Getting a handle on inflation

September 13, 2017 12:45 PM

I'm trying to wrap my head around a simple question. If one wanted to retire an receive a yearly income of 50 000, how much money would I have to put away yearly starting today.

Using the following assumptions:
Investment yields of 6%
Inflation of 2 %
Current age: 32, Retirement age 65, death 85
My retirement contributions increase with inflation

I made a spreadsheet for this:


I came out with 11000$ a year roughly in todays dollars. I can't get this to jive with any other online retirement calculators like this one. which tell me I need drastically less.


Help prove me wrong?

posted by cacofonie to Work & Money (9 answers total)

That calculator you linked also says about $11,000 per year.
posted by michaelh at 12:51 PM on September 13, 2017

Starting by entering the numbers in the calculator as you present them here, if you click "Show Contribution Breakdown" on that calculator and go over to where the payouts start on p4, it looks like they are not adjusting that starting $50k for inflation the way your spreadsheet does, they just start applying 2% on it after it starts. If you set the 'required income in retirement' to your spreadsheet's first payout number of $96,112, the calculations look a lot more similar - but still not identical, because again looking at the Contribution Breakdown you can see that the online calculator isn't growing your annual contributions by inflation the way you did in your spreadsheet, either. If you set the planned contributions in the calculator to $15,371, which is the average of the contributions in your spreadsheet, the two agree.

At least, that's my hot take.
posted by solotoro at 1:08 PM on September 13, 2017

You need to be clear about whether you want $50k/year in 2017 dollars or in 2050 dollars.

$50k in 2017, with 2% inflation, is $96,112 in 2050
$50k in 2050 is $26,011 in 2017.

So as you can see, being clear about that assumption changes your retirement needs by as factor of 2. (and even if YOU are clear about which you want, you need to make sure your retirement calculator is using the same assumption you are)
posted by misterbrandt at 1:27 PM on September 13, 2017 [7 favorites]

Try this calculator (you can expand it at the bottom to adjust inflation).
posted by pinochiette at 2:00 PM on September 13, 2017 [1 favorite]

This involves the actuarial details that go into creating annuities. You can ask an agent who sells them how much the annual premium would be to buy a deferred annuity to arrive at a $50K annual payout in 2017 dollars in the year 20xx. The nice thing about annuities is that they pay for life. To do your own calculations you need to predict the year you will die.
posted by megatherium at 2:58 PM on September 13, 2017 [1 favorite]

Will the principal be used or will it be intact at age 85?
posted by theora55 at 6:45 PM on September 13, 2017 [1 favorite]

Are your investment returns adjusted for inflation or not? I.e. are you getting nominal 8% returns and real 6% returns, or nominal 6% returns and real 4% returns?
posted by clawsoon at 7:19 PM on September 13, 2017

Sorry, I accidentally ran the calculator at 4% return 2% interest. I agree with the above explanations of the difference.
posted by michaelh at 1:25 PM on September 15, 2017

Response by poster: Hi all. I found out the difference. The calculator does not increase your contributions indexed to inflation, whereas mine did!

Thanks for your help, and man does inflation suck.
posted by cacofonie at 10:45 AM on September 22, 2017 [1 favorite]