318- From the Vault: Inflation Kills!
b'Inflation is the devaluation of a currency\\u2019s buying power. It occurs over time as the government pumps money into the economy and there\\u2019s a larger money supply buying a relatively fixed amount of stuff.\\n\\nLet\\u2019s say you\\u2019re 50 years old. You want to retire in 10 years at age 60 - we\\u2019ll figure 30 years in retirement and you\\u2019re putting money into a 401(k). Let\\u2019s assume you started with $100,000 today in your 401(k) and then contributed $2,000 a year into it because you\\u2019re putting your kids through college and that\\u2019s all you can put away.\\n\\nIn 10 years, you would expect to make around 6% in your 401(k) (if your employer isn\\u2019t matching your money). A reasonable inflation rate is probably going to be about 3%. What this means is that in 10 years, when you\\u2019re ready to retire, at 6% with an inflation rate of 3%, you end up with $205,000 to retire on.\\n\\nLet\\u2019s assume that you\\u2019re going to live on $50,000 a year. You\\u2019ve got $205,000 right now, but 10 years from now it won\\u2019t be worth that at all. Inflation affects everything including the costs of living, so your $50,000 is going to be $67,000 a year to live that same basic $50,000 a year lifestyle. Even if you keep investing the money at 5% or 6%, inflation continues at 3%.\\n\\nHow many years will you be able to live in retirement before you completely run out of money, spending only $50,000 a year in today\\u2019s dollars? The answer is 3 years. If you were to not learn how to invest, you\\u2019d need to come up with another $1.3 million to live on for 30 years.\\n\\nIf you change your 6% return to 15%, you\\u2019re going to make a lot more money. 15% is in the range of a return that\\u2019s doable for any investor. What happens then? We\\u2019re going to keep all the things the same, but we\\u2019re going to increase the rate of return to 15%. At that point, your number becomes $540,000 and you\\u2019re only short about $96,000 to make it all the way through those 30 years of retirement.\\n\\nThis week, Danielle and Phil discuss the impact inflation has on our investing practice. They also talk about Buffett\\u2019s solutions for \\u201clittle guy\\u201d investors, and how we can set ourselves apart from others through our investing education.\\xa0\\n\\nLearn how to invest with more confidence and less risk with this free Investing for Beginners in 2021 guide. Click here to download: https://bit.ly/3urGezS\\nLearn more about your ad choices. Visit megaphone.fm/adchoices'