A couple of weeks ago I presented you with The 10% Compounding Myth. A few people brought up in the comments that the examples are used as a tool to encourage people to save. I applaud that endeavor, but I wish we could do it with real math.
What happens when you don’t? Meet Luke and Hannah Wickham courtesy of USA Today. The couple is doing extremely well financially, far better than most. You can tell they’ve been ready their Kiplinger’s and/or Money Magazine. However, they have lofty goals – perhaps too lofty.
“The planner points out that the couple would actually need $18 million upon retirement to have the spending power of $10 million today, assuming a 3% annual inflation rate. This insight is eye-opening to Luke, who admits he ‘really hadn’t thought about the time value of money'”
I think 3% is a little conservative for inflation, but the point is the well made. We all need to start think about the “time value of money.”