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How to Get Constant Purchasing Power for a Fixed Income Retirement

10/24/2017 7:56 AM

If one retires on $1000.00 per month without any possibility of cost of living increases, how much should one put into an investment account so that the purchasing power would be the same for 30 years? At the end of 30 years, the fund would be 0. Example: If one used $800.00 of the amount and put $200.00 in the investment account, and then every year, he would increase his income equal to the cost of living for that year. The extra income would come from the investment account. Use investment return of 3% and cost of living increase of 2%.

I tried to figure it, but I couldn’t. I’m sure someone out there can calculate it for me. As a lesson, try to get a retirement that has guaranteed cost of living increases. My retirement has fixed income with no hope of cost of living increases. My purchasing power now is about 60% of what it was when I retired in Nov. 1998. My bills have gone up. If I have the audacity to live another 20 years, my purchasing power will be nil.

Have some fun today,

PAPADOC

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#1

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 8:11 AM

That sounds like have some fun today, but not tomorrow.

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#2

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 9:16 AM

Start saving as early as possible.

I ran a quick calculation. If you started at 18 years of age, at $10.00/hr, with a 3$ raise every year, and you take advantage of the company's 401K by saving 5% yourself and 4% company match.

Hope you can read it... of course, this will increase if you motivate and improve yourself in your career.

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#3

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 9:48 AM

I can't live on $1000/month here, and why would you want to spend down to nothing?

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#4
In reply to #3

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 9:54 AM

I have to agree...one trip to the doctor and you're devastated.

I had to take a guess, which I am...one started a little late in retirement planning.

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#6
In reply to #3

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 10:53 AM

$1000.00 is a good number to ratio for other pension amounts.

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#5

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 9:55 AM
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#7

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 11:18 AM

Initially your income is $12K, so say you need to double that over 30 years to $24k, so you need to make $12k over 30 years at 1% of principal compounding interest....The first year would be $12k, the second year + 2% = $12.24k...now to get $240 at 1% you need $24k ....the 3rd year you need $245 to equal 2% of this amount which is $12,250., so you need about $37k ....but you should double this for safety margin, that would be $74K...On the 30th year you go out and buy a new car....haha

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#8
In reply to #7

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 11:27 AM

Doubling your money, I like Einstein's Rule of 72

Which basically is;

Einstein's "RULE of 72" provides us with an easy formula to figure how long it takes to DOUBLE YOUR MONEY! As a rule of thumb, at 10% interest money will double every 7.2 years.

It doesn't matter if the investment can be a stock, a bond, a CD, and any other way of getting a return on your money. You don’t need a calculator and you can use this method to quickly calculate in your head how long it will take to double your money.

All you need to do is divide 72 by the annual rate of return. The result would be approximately the number of years required for your investment to double in size.

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#10
In reply to #7

Re: How to get constant purchasing power for a fixed income retirement.

10/24/2017 4:25 PM

Yeah more likely around $250k....adds up

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#9

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/24/2017 2:45 PM

With the prime rate at 3.75% the stock market is a better deal, today.

But there's risk that the market could fall at any time.

If you ever figure this out, all your worries will be over.

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#11

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/24/2017 9:12 PM

You have to find someone that will pay you the same rate of interest on your money as the rate of inflation. Good luck with that...

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#12

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/24/2017 9:55 PM

Starting with $100k payout of interest for 16 years and principal remaining 14 years...

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#13

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 12:14 AM

That's a job for a spreadsheet. First work out some rates:

A = 1 + ( bank_rate / 1200 ) eg 6% return/Annum = 1.005 (monthly)

B = 1 + ( living_increase / 1200) eg 3% C.O.L./Annum = 1.0025 (monthly)

So each month you start with some amount (P) and some costs (C), each month

The new costs = C' = C * B, your expenses go up a bit each month.

The new Principal P' = P * A - C', you get a bit of interest and lose a bit on expenses.

Typically systems like this are sensitive to when the bank pays interest, tax rates & when you take out your expenses.

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#14

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 5:06 AM

Do what I did. I Inherited my family's money.

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#17
In reply to #14

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 9:26 AM

That's a way to have a sound retirement. However, most of us didn't have the foresight to have rich parents.

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#15

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 7:58 AM

The rough answer would be 33% ($330) which is the difference between inflation and your expected rate of return on the investment side. This would as other said would be very precariously balanced on nothing going wrong (not the world I live in.) Make sure you have back up for any essentials purchased at minimum cost and insurance that covers 100% of everything and you should stay on track.

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#16

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 8:12 AM

I always get a kick out of these compound interest calculations. Saving account rates have been well below 1% lately. Sure, you can usually get more return with the stock market, but there is much more risk. Look what happened in 1987 and 2008. Dividend stocks are a good compromise but look at how GE's stock has recently declined. In my view, it is best to keep a balanced approach and make money by not wasting money.

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#18

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 11:10 AM

I don't know if I should even say anything. My approach would be from a philosophical view, instead of a mathematical view. The future is unpredictable. Money would be worthless, unless the currency that it's in is unshakeable. Bubble markets come & go, therefore its value comes & goes. But, regardless of its monetary value, The usefulness of the product itself is more stable/valuable. Therefore, my approach would be based on my personal value of the product, and not the market's monetary value of it. In other words, if the USA got sold out to the Russians, then we'd have to convert to Rubles. The conversion rate would be out of the control of any current money market. However, if the price of any durable good(s) dropped, then inflation (cost of living) for that micro-sector, would be negative, and the purchasing power of your money would have gone up without any (cost of living) adjustments. I would therefore, prepare for retirement by prepaying for the things I needed for retirement with present-day money, so that they were already paid for before any inflation/market-crash has a chance to erode the value of the money itself. Politics has a way of devaluing math. Therefore, I think it's more of a philosophical problem than a math problem. My philosophy in this regard, is that, if you don't invest in the future, then you won't have a future. But then again, I never had any luck with money to start with, so I'm probably wrong. I still need to work on that.

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#19

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/25/2017 6:15 PM

$80k start

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#20

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 12:02 PM

All (?) you have to do is accurately estimate:

- net annual inflation %;

- net annual tax %;

- net annual account fee %;

- net annual health care cost %;

- net annual every-thing-else %;

Total-up the net-annual-sum %, and then find an account % that is larger,

and then calculate how many lotteries you have to win to cover unpredictable differences...

P.S. Still don't quit your day job..

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#21
In reply to #20

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 12:19 PM

Also estimate in the mix what you would require to live on.

  • mix vigorously
  • Bake at 350 degrees F
  • and wal la... an apple pie.

PAPADOC: "But, I wanted cherry. "

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#29
In reply to #21

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/30/2017 10:14 AM

wal la voilà

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#22
In reply to #20

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 2:53 PM

Invest in music...it never loses value, and as long as you can rock and roll it doesn't matter how much money you have....it still feeels good

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#23
In reply to #22

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 3:25 PM

He wanted an opinion... this is the place to ask for one.

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#24
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Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 4:02 PM

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#25
In reply to #24

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 7:59 PM

Considering that Lauren Bacall starting acting in Hollywood movies when she was just nineteen (or younger...), it should have been specifically illegal for her to be filmed walking like that...

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#27
In reply to #25

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 8:11 PM

If you think that was bad, watch:

Fast Times at Ridgemont High - Amazing Adventure - YouTube

Get your nitro pills ready!

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#31
In reply to #27

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

11/06/2017 12:26 PM

I now vaguely recall that, decades ago, I wanted to transfer to Ridgemont, but I was too slow...

So, I had to finish up at Rydell...

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#26
In reply to #22

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/26/2017 8:05 PM

Regarding the above, I am duly reminded that, decades ago, my brother played bass guitar for a band called ''Georgia Pacific''. The good news was that they actually put out an album, but the bad news is that he played for the other Georgia Pacific band...

GA from me for the music, anyway...

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#28

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/29/2017 2:49 PM

Consider retiring and putting investment on a place where the food and necessities are cheap. Take a vacation in Asia to see if that pension is workable. Here in the Philippines, foreigners have flooded the condominium properties. With a $1000 monthly pension, that's more than enough to roam around the island to see some views and enjoy life.

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#30

Re: How to Get Constant Purchasing Power for a Fixed Income Retirement

10/30/2017 1:58 PM

Have you contacted your local utility about how to lower your bill further, or to receive assistance with your bill as a senior citizen. Consider your age as a badge of honor, not something to be ashamed of.

You deserve a break, big guy.

I am no investment counselor, although I do share in your anxiety with respect to having sufficient funds well into the advancement of years after retirement.

Think of retirement as an opportunity (maybe) to do a job that you always wanted or liked, but it never paid enough to provide your full income.

Or find out what is missing and wanted in the local community, and start providing it.

I am not speaking of anything unseemly, illegal, immoral, or otherwise troublesome. Sometimes it could come down to driving cars from one town to another for a dealership.

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Anonymous Poster (1); Dennis R. Levesque (1); FFEJ_again (1); gutmonarch (1); James Stewart (1); khelectrical (1); lyn (2); MR. Guest (4); PAPADOC (2); phoenix911 (5); Rixter (1); ronc (1); SolarEagle (7); terrapin (1); Tom_Consulting (1); Tornado (1)

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