A pensions and investments company. I believe the idea was to try to get you to save up with smart investments for a future that would be way more expensive than the future that actually occurred
Yeah. It’s common even among people with some thought to finances. An idea like- “oh, if I do these things I am on track to have 3.5 million when I retire..” or “my bills are $4500 a month so if I add medical care and factor for other things I’ll need $X million to retire…”
But it’s not quite like that because each $1 tends to be worth less as time goes on. So like we have seen inflation as high as 14% recently. So someone who was entering retirement at this point, let’s say they saved up $100k for retirement to make it simple, and they got a relatively decent 14% return- the effective spending power of the money they out in would be basically the same. The money didn’t actually grow, it just didn’t become worth less. So if you see an average inflation of 5% against a plan that returns 10% you’ve only gained about 5% on your investments- so if you Olán thinking you’re money will be worth 10% more you may find yourself short on your budget when you retire in that scenario.
We can strip all the complexity and just say that if you are 18 in 2023 and set up your retirement so that you should have around $40k to spend a year when you retire in 50 ish years and that should be good because $40k is around an average US salary and you’re social security will leave you enough to still have some cushion for things- in 50 years $40k might be the equivalent of living on $27k today, and the life style you can maintain or afford isn’t the same as $40k. So it is certainly a good idea to think about when we reach old age.
But it’s not quite like that because each $1 tends to be worth less as time goes on. So like we have seen inflation as high as 14% recently. So someone who was entering retirement at this point, let’s say they saved up $100k for retirement to make it simple, and they got a relatively decent 14% return- the effective spending power of the money they out in would be basically the same. The money didn’t actually grow, it just didn’t become worth less. So if you see an average inflation of 5% against a plan that returns 10% you’ve only gained about 5% on your investments- so if you Olán thinking you’re money will be worth 10% more you may find yourself short on your budget when you retire in that scenario.