How to Calculate Your Financial Independence Number with Inflation

August 24, 2023

In this highlight, we discuss how to factor in inflation when calculating your financial independence number. For more information, check out our Know Your Number course!


Happy to Hockey asks, “When calculating your Financial Independence number, do you consider inflation? So, if I need 40K per year now, does that mean I need like 1 million for the four percent rule? Or should it be considerably higher because of inflation?”

The answer is yes, absolutely. You should factor in inflation. One of the big misconceptions or mistakes we often see in retirement planning is people picking a number. They’re like, “As soon as I get to a million dollars, then I’m going to retire.” Or maybe it’s, “As soon as I get to 2 million, then I’m going to retire.” We need to guide them and say, “That’s great, but if you’re doing that 15 years from now, the four percent withdrawal rate will still be four percent of whatever the nominal value of your dollars is. But the real purchasing power of those dollars will have decreased.” In other words, two million dollars 15 years from now won’t be the same as two million dollars today. So, that’s absolutely something that needs to be factored into your plan. You don’t want to build up to a million and then realize that 40 grand won’t go as far as you thought it would.

Inflation has an impact, and what’s frustrating is that for the last two to three decades, you could use an inflation adjustment of two to three percent and be fine. But now, post-pandemic, we’ve seen inflation spike up. Depending on the variables you look at, we’re even seeing double-digit figures, especially in certain sectors and everyday products. This can be frustrating, especially if you’re getting close to retirement, say, within the next five to ten years. You want to narrow down what you need for success. But don’t worry; this is why we’ve created tools to be your co-pilot. As you make small incremental decisions toward Financial Independence, you’ll be prepared.

Now, let’s talk about creating a retirement plan that covers all scenarios. Think of it like wearing 3D glasses. The first is the dream plan—everything is amazing in retirement. Then there’s the down-to-earth plan—what you think will likely happen. And lastly, there’s the doo-doo plan—when things go wrong. Creating these three plans might sound complex, but we’ve got you covered with the “Know Your Number” course. You can find it at learn.moneyguy.com. This course helps you figure out your retirement number, considering factors like age, rate of return, and inflation. You can adjust the assumptions in real time to see how the numbers change. It’s like filling in a 3D plan by numbers.

When you’re getting closer to retirement and think you’re in the horseshoe’s bullseye, that’s where the Abundance Cycle comes in. This is where your co-pilot helps you navigate any blind spots and assess your probability of success. We’re here to help you through that process. For more information, check out our free resources. Love it!



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!