THE SCENARIO
I recently got a letter from the company that manages the 401(k) accounts at the place I used to work. They said that if their projections are correct, then when I retire (in 23 years), my account should provide $48,000 per year in income (amounts have been changed to protect the innocent). Wow, $4,000 per month to live on! Sounds great! (Actually, it sounds a little thin to me if that's all the income I have, but we'll go with it for now.)
However, I've heard of inflation, so what I want to know is 'How much buying power, in today's dollars, will that $4,000 per month have in 23 years?'
To keep things simple, I'll use monthly compounding, and an inflation rate of 3.7%. (This is about what the average annual inflation rate has been in the United States for the past 40 years.)
If you don't like my 3.7% number, feel free to use o...
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