{"id":606,"date":"2021-08-02T12:00:00","date_gmt":"2021-08-02T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/why-you-actually-need-less-to-retire-early-than-in-30-years-from-now\/"},"modified":"2025-09-05T16:59:05","modified_gmt":"2025-09-05T16:59:05","slug":"why-you-actually-need-less-to-retire-early-than-in-30-years-from-now","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/why-you-actually-need-less-to-retire-early-than-in-30-years-from-now\/","title":{"rendered":"Why You Actually Need Less to Retire Early (Than in 30 Years from Now)"},"content":{"rendered":"

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\n

I don\u2019t want to bury the lede: The point of this article is that inflation can suck the life out of our money. <\/p>\n

So often, we talk about early retirement and traditional retirement savings in the same breath, as if they\u2019re an apples to apples comparison: <\/p>\n

\u201cI can retire as soon as I have $1.5M invested!\u201d we say, with good intentions, meaning it\u2019s a number and not an age <\/em>that matters.<\/p>\n

And that may be true, if we have $1.5M in the next 5-10 years<\/em>. <\/p>\n

Because in 5-10 years, inflation won\u2019t have had too<\/em> much of a chance to erode the value of those dollars yet. <\/p>\n

But the second we start talking about timelines that are 20, 30, and sometimes even 40 years away, we\u2019re in an entirely different ball game where the rules are new and the scoring system has changed entirely.<\/p>\n

Time<\/strong> is the key difference between early and traditional retirement, and time matters insofar as it tells us how many years of inflation we\u2019re up against. <\/h2>\n

The shorter your timeline (read: the faster you can get your number), the less you have to stress about inflation eating your FI number alive. <\/p>\n

Ready for an overly simplified explanation? Inflation is what happens when the supply of money increases but the supply of things to buy (and consumer demand for those things) doesn\u2019t, so the purchasing power of each dollar goes down\u2014supply & demand from Econ 101 (a class in which I got a B, for level-setting).<\/p>\n

The \u201caverage\u201d increase in prices per year according to the Consumer Price Index is 3%, but some argue that that number is artificially low because it doesn\u2019t represent the price of things that people are actually buying<\/em> or represent the actual increase in the amount of money being printed each year by our friends at the Fed. <\/p>\n

But for the purposes of today\u2019s exercise, we\u2019ll use 3% to avoid the naysayers who claim I\u2019m being too liberal with my inflation calculations (because while we\u2019ve seen high inflation in the last 12 months, my crystal ball is on the fritz and it\u2019s hard to predict how it\u2019ll change in the future).<\/p>\n

The question we want to ask is, What do I really mean by $1.5M?<\/em><\/p>\n

I picked $1.5M pretty arbitrarily; it\u2019s a number I see a lot used for both early retirement and traditional retirement alike (so it felt apropos). <\/p>\n

Most likely, you mean you want the purchasing power equivalent of $1.5M today<\/em> when you retire, as if you were 65 today and had $1.5M. We have to adjust for the amount of time (and inflation) that happens between now and then, whenever \u201cthen\u201d is.<\/p>\n

That\u2019s partially why early retirement is appealing: The faster you can reach it, the less inflation you have to calculate for. <\/p>\n

It boils down to this: $1.5M in 40 years from now will not be worth what $1.5M (read: have the purchasing power) is today.<\/p>\n

For an easier way to think about this, imagine someone 40 years ago who had $1.5M back then\u2014back when gas was 25 cents and you could get a cheeseburger for 50 cents. Your $1.5 million meant something very different in 1982 than it does in 2022.<\/p>\n

Let\u2019s say you\u2019re 30 years old today and planning to retire when you\u2019re 65<\/h2>\n

If you want the equivalent of $1.5M for retirement at 65 (in 35 years from now) and we assume inflation increases by 3% every year (again, potentially a low estimate), you\u2019d need:<\/p>\n

$4,097,857.<\/strong><\/h3>\n

In 35 years, $4.1M will have the purchasing power that $1.5M has today. <\/p>\n

Is my point to shit on traditional retirement? Not at all. <\/p>\n

Does this mean you can\u2019t calculate your traditional retirement number with some degree of accuracy? No, not necessarily. <\/p>\n

It just means that calculating 2056 money using 2021 dollars is just about as useful as calculating 2021 money using 1986 dollars\u2014not very useful.<\/p>\n

But there\u2019s good news, too<\/h2>\n

35 years of time won\u2019t just<\/em> bring inflation. It\u2019ll bring beautiful compound interest, too. <\/p>\n

That means that\u2014although you\u2019ll definitely need to be saving and investing more than you might think\u2014you\u2019ll have plenty of time for that snowball to get bigger. <\/p>\n

You\u2019d have to invest $30,000 per year to have around $4M after 35 years, which sounds daunting as hell\u2026 until you remember that $30,000 today is not <\/em>the same thing as $30,000 in 20 years from now (assumes a 7% average return). It\u2019s likely a lot harder<\/em> to save $30,000 today than it will be in the future\u2014the positive side of inflation.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

I don\u2019t want to bury the lede: The point of this article is that inflation can suck the life out of our money.  So often, we talk about early retirement and traditional retirement savings in the same breath, as if they\u2019re an apples to apples comparison:  \u201cI can retire as soon as I have $1.5M […]<\/p>\n","protected":false},"author":178814,"featured_media":2424,"comment_status":"closed","ping_status":"open","sticky":false,"template":"si-template-single-post-401-k-s-and-iras.php","format":"standard","meta":{"footnotes":""},"categories":[37],"tags":[47,44],"class_list":["post-606","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-independence","tag-401ks-and-iras","tag-taxable-investing"],"yoast_head":"\nWhy You Actually Need Less to Retire Early (Than in 30 Years from Now) - Money with Katie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/moneywithkatie.com\/why-you-actually-need-less-to-retire-early-than-in-30-years-from-now\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why You Actually Need Less to Retire Early (Than in 30 Years from Now) - 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