Wednesday, August 08, 2012

The impact of inflation (again)

I found this handy calculator for showing the impact of inflation on asset values, expenses etc. There is also lots of other useful data on the site.

From a retirement perspective, I am somewhat paranoid on the effects of inflation on my ability to sustain our desired standard of living over what I hope will be four decades of not participating in the work force. Several years of watching governments print ridiculous amounts of money to cover their unsustainable spending can do that to anybody.

Extrapolating backwards and assuming that the next forty years will collectively be a repeat of the last forty years (who knows?) would suggest that I can look forward to 449% cumulative inflation over that time period. Put differently, in forty years time, I will need $5,489, 904 to have the equivalent purchasing power of $1,000,000 today. That's actually a number that I find quite scary and explains my preference for tangible and risk assets and dislike for perpetually depreciating paper.

The calculator uses as US data and inflation in many other places has averaged a bit higher (there is also a series of data for Hong Kong on the HKMA website but it does not go back as far) AND uses CPI numbers which represent a basket of goods and services which will be different from my own expenses. Accordingly, I have used different numbers when doing my own projections.

No comments: