This Shocking Silent Lurker Can Kill Your Retirement Plan

Investing for retirement is a daunting task.

You’ll need a massive amount of money to provide a reasonably safe income for your golden years, especially if you believe Social Security won’t be around.

Unfortunately, many people never factor in one of the largest threats to their retirement.

Retirement’s Massive Goal

The massive goal most people consider when it comes to their retirement is stockpiling enough assets to reach their retirement number.

Your retirement number is the amount of financial assets a person will need to have in order to provide a reasonable income to live off of in their retirement.

To calculate how much money you’ll need using the commonly cited 4% rule, simply take what you expect you’re yearly expenses will be in retirement and multiply by 25. (Note: This is just a simple calculation and you should put much more effort into your retirement plan.)

These numbers are often huge and can easily exceed $1,000,000.  Due to the enormity of these numbers, many people simply stop there. They leave out some of the most important factors to consider when it comes to retirement planning.

Just for fun, here are a couple quick examples of how to calculate a retirement number. If you think your expenses will be $40,000 a year, you simply multiple by 25 to get a $1,000,000 retirement number.

Think you’ll need $100,000 a year? Your retirement number will be $2,500,000.

The key that many people forget to factor in can absolutely destroy your retirement. That threat is inflation.

Inflation – The Destroyer Of Retirements Everywhere

You must account for inflation when you come up with your yearly expense number. Unfortunately, many people forget about inflation.

Instead, most people simply consider how much money they’d need in today’s dollars and calculate their retirement number based off of today’s dollars. This could leave you in a horrible position.

Why do people forget to factor in inflation? Usually inflation isn’t a huge factor in our every day lives. Inflation hasn’t been very high recently and we don’t tend to notice it.

However, if you think hard about how much something cost 10, 20 or 40 years ago, you’ll notice there is a HUGE difference in price between now versus back then.

How Inflation Affects Your Retirement Number

So, let’s say you do want to retire on $40,000 a year in expenses in today’s dollars. The challenge is you don’t want to retire until 40 years from now.

In order to reach $1,000,000 in today’s dollars, you’ll actually need $3,959,260 in future dollars to have the same spending power. To come up with that number, I assumed a 3.5% inflation rate. Isn’t that insane!

Now that I know I’d need to end up with almost $4,000,000 instead of just $1,000,000 to retire in 40 years, that definitely changes how much money I’ll be putting away for retirement.

Instead of having to invest roughly $284 a month at an 8% return to reach $1,000,000 when I retire in 40 years, I’d have to invest roughly $1,135 a month at the same 8% return to achieve the $4,000,000 goal.

If that isn’t an eye opener on how inflation can destroy your retirement, I don’t know what is.

What Happens If You Don’t Account For Inflation

If you only end up with $1,000,000 in 40 years, you only have 25% of today’s purchasing power. Wouldn’t it stink to live in retirement on the equivalent of $10,000 a year? That’s insanely frugal if you ask me!

Please don’t fall into the common trap that so many others do when calculating their retirement number. Factor in inflation and make sure to check whether or not you’re on track with your retirement at least once a year.

Your expenses could change drastically or inflation could differ dramatically from your predictions.

While most people tend to think that these numbers will only get worse, there is a possibility they will get better. Don’t dread your annual check up. It might give you some good news.

Another way to proactively plan for your retirement is using the tools Personal Capital offers. Simply link your financial accounts to total up your assets. Then input your retirement goals and assets into their calculator. Personal Capital will then tell you your probability of retirement success.

Personal Capital even offer financial planning services for a fee if you’d rather hand your planning over to the pros.

Do you have a retirement number you’re aiming for? Did you forget to account for inflation in that calculation? Let me know in the comments below! I love hearing about retirement planning! 

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.


  1. We aren’t really shooting for a particular number at this point. We’re just trying to save and invest as much as we can. Our rental properties are a big part of our retirement plan as well, and luckily rents should rise with inflation.

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