# Keeping up with Inflation

Discussion in 'General Investing Discussion' started by legionx, 11th Sep, 2008.

1. ### legionxMember

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This is probably a really simple question. But say if I invest \$100 for 30 years at 10% return, I get around \$217,132.11 with compounding interest.

Now if we assume 4% inflation for the next 30 years it should only be worth around \$66,945.88, which means I need \$704,245.74 to keep up with its real value. (Source: Inflation Calculator - Save Enough to Account for Inflation)

If I increase my monthly contributions by 4% each year will I keep up with inflation's decrease of 4%?

2. ### BillvGetting there

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Excuse me, you've lost me there
Where did the \$704,245.74 come from?

Cheers

3. ### legionxMember

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4. ### BillvGetting there

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Something is not right with your calculations.
Investing \$100 for \$30 years and compounding daily at 10% will come to \$2007 and not to \$217K.

Even if an additional \$100 was added monthly so yout total yearly investment was \$1200 the total amount after 30 years only gets to \$24K

But let's assume that it did get to \$217K.
To be able to counteract inflation you need to be adding 4% of the capital and not 4% of your contribution and you need to be doing this at the compounding rate.

5. ### legionxMember

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Thanks, that answers it, 4% to the capital, that makes sense. I'm not sure why your calculations are different. I used a different calculator this time and actually got more!

Savings Results Calculator

Pump in \$100 per month, for 30 years at 10% p/a compounding interest. You get \$226,048.79

6. ### BillvGetting there

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nice 1.

Now if you went 1 step further and sallary sacrificed \$115/month into your super you will pay \$15% contributions tax so your monthly contribution will be reduced to \$100 but your actual cost depending on your tax bracket could be up a lot lower than \$100.

If you were on the 40% income tax scale you could increase your super contribution to \$170/month. You will pay the 15% contributions tax but you will still have \$144.50 added to your super.

So your savings are higher than if you did it outside super and it will still cost you \$100/month.

The only problem with the above plan is that you can't touch the money until you are at retirement age.

Cheers

7. ### crc_errorThe Rule of 72

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even better BV, if your a low income earner, you can put in your \$100 doll payment, the government will give you another \$150, so your contribution would be \$250 per month...

how about we run those figures through the system!

8. ### BillvGetting there

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CRC

I did and it came up with crc_error something....

9. ### TropoWell-Known Member

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Bill,

You just made my day !!!:

10. ### BillvGetting there

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That CRC was trying to crash the system

11. ### TropoWell-Known Member

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Watch out Bill! It might be a virus...