How To Account For Inflation In Your Retirement Planning

July 10, 2023

In this highlight, Brian and Bo talk about how to account for retirement planning when saving for your retirement.

Check out our Know Your Number course to help you on your wealth building journey, and help grow your army of dollar bills.


The next question is from Ben. He asks, “When figuring out your financial independence number, do you calculate inflation? For instance, if I need $40,000 per year now, should I assume I’ll need $80,000 per year when I retire? I’m 37 years old and saving 25%. How old was he again? 37.”

Well, you’re giving me a lot of one-word answer questions here. My simple answer is yes. But there’s so much more to it. Forty thousand dollars today will not have the same purchasing power as forty thousand dollars in the future. Forty thousand dollars today will buy you a certain amount of goods, but in the future, it will probably buy you fewer goods. So, you have to factor in inflation and account for it.

We often receive criticism when we talk about how to become a millionaire. People say, “Oh, a million dollars won’t be worth anything.” While that’s true, you have to reach a million dollars before you can reach two million, three million, or four million. What matters is understanding that inflation is a real thing and the value of our dollars erodes over time.

When projecting future expenses and the size of your portfolio, inflation must be factored in. That’s why in our Know Your Number course, we built in an inflation assumption. You can check it out at learn.moneyguy.com. It allows you to determine what your future expenses, based on today’s dollars, should be. You can even toggle between different inflation environments, from low to hyperinflation, to create your plan considering inflation.

Here’s what I think: inflation is very important. However, to all the trolls out there who criticize prioritizing a million dollars, saying it won’t be worth anything in 30 years, let me share my journey. When I was 16 or 17 years old and Mr. Morrow shared the idea of saving a million dollars, it sounded like a lot of money. Here I am, approaching 50, and a million dollars is still a significant amount. It’s a chunk of money.

When you reach certain milestones, such as six figures and then seven figures, you start to experience accelerated growth. That’s the boiling point, the critical mass point where your money starts growing upon itself. So, there’s nothing wrong with getting excited about reaching a million dollars. Take inflation into account, as it is undoubtedly important. That’s why we created the Know Your Number course, to run different scenarios based on inflation rates. You have the flexibility to choose percentages, such as two percent, three percent, or six percent. Check it out at learn.moneyguy.com to know your number.



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