10k in 1980 = how much today ?

candlemouse

Hi team,

We often hear it said that xx in such a year would equate to xx in todays money. How is that calcuated ? Euro's please even though the euro wasn't around back then and no guarantee it will be around either!!

seamus

http://www.hargaden.com/enda/inflation/calculator.html

candlemouse

Wow! cool calculator. Thanks.

I'm trying to calculate how much 100,000 if put away for retirement today, will need to grow per year for use in 30 years time. I was hoping to do this by getting an average yearly inflation figure for the past 30 years.

FURET

candlemouse wrote: »

Wow! cool calculator. Thanks.

I'm trying to calculate how much 100,000 if put away for retirement today, will need to grow per year for use in 30 years time. I was hoping to do this by getting an average yearly inflation figure for the past 30 years.

Use moneychimp.com -> Calculator

You start off by entering the amount you want to live off annually - in today's money - if you retired right now.

Now you compound that amount by, say, 2.5% per annum for, say, 30 years in order to see what the amount would be worth in 30 years. Inflation could be higher, could be lower, but let's assume an average annual rate of 2.5% for the next 30 years.

So let's say you want to have 40,000 euros in today's money when you retire in 30 years' time:



So you'll need 83,902.70 euro during your first year of retirement 30 years from now.

The recommendation is that you should draw down no more than 4% of your total retirement pot each year for every year that you are retired. So, that 83,902.70 is 4% of your total retirement pot.

Therefore to retire on the future equivalent of 40,000 euro, you would need a total retirement pot of 2.097 million euros - and it would need to be invested in something giving you an average return of more than 6.5% per year during your retirement, so that you would never run out of money.

To attain a pot of that size, you would need to save 1,500 per month every month for the next 30 years and it would need to grow at least 7.7% on average per annum:



Historically, you can accomplish growth of this rate with a low cost broadly diversified portfolio of passive index funds.

That's how you do retirement planning calculations in a nutshell. And I didn't charge you an arm and a leg for it, did I?

lucky john

FURET that's as good an answer as anyone is going to give to a question on here. Its also one of the scariest.

Ace2007

lucky john wrote: »

FURET that's as good an answer as anyone is going to give to a question on here. Its also one of the scariest.

It's why anyone that wants to save for the future is told to max out their AVC's first as it is the most tax efficient way to save.

Unfortunately the majority of the population don't realise they are going to be very poor in their old age as they are not saving enough - couple this with the fact that the state pension more than likely will not be around - gets even more scary.

Dwarf.Shortage

Another illustrative fact is that a guaranteed income of €10,000 a year until you die for a 65 year old male would cost around €250,000 in today's market, annuity rates are not attractive at all at the moment.

FURET

lucky john wrote: »

FURET that's as good an answer as anyone is going to give to a question on here. Its also one of the scariest.

Ace2007 wrote: »

It's why anyone that wants to save for the future is told to max out their AVC's first as it is the most tax efficient way to save.

Unfortunately the majority of the population don't realise they are going to be very poor in their old age as they are not saving enough - couple this with the fact that the state pension more than likely will not be around - gets even more scary.

The majority do not know and think you need all sorts of expertise to figure this stuff out. You don't. It's simple. Amazing it's not taught in secondary school.

Regardless, the single biggest reason why one should start saving for retirement as early as possible is shown below:



By starting to save 1500 per month just 5 years earlier (so for 35 years rather than 30 years), you end up with more than a million euro more in your retirement pot.

Time and low cost are key. We can see the deleterious impact of just 1% extra cost here:



That extra 1% cost has turned the 7.6% return into 6.6%, and cost 627k euro, which mostly likely went into the pocket of your financial adviser or some fund manager.

candlemouse

Thanks all. Let me ask my original question another way. If I put 100k in cash under the mattress today, what will it be worth in 30 years time ? 100k, 80k, 60k ?

FURET

candlemouse wrote: »

Thanks all. Let me ask my original question another way. If I put 100k in cash under the mattress today, what will it be worth in 30 years time ? 100k, 80k, 60k ?

To keep its value it would have to grow to 209,756 euro:



But you didn't grow it - you kept it under your mattress. So you still have 100,000 euro.

However, it retained only 47% (100,000/209,756) of its original value assuming 2.5% average annual inflation!

zl1whqvjs75cdy

Excellent post by Furet and others. Can I just query something though. You said that it is possible to get 7.7 % growth with low cost broadly diversified portfolio of passive index funds. I understand most of that but could you give an example of a passive index fund? How does a passive index fund differ from a normal index fund?

Dwarf.Shortage

donkeyoaty0099 wrote: »

Excellent post by Furet and others. Can I just query something though. You said that it is possible to get 7.7 % growth with low cost broadly diversified portfolio of passive index funds. I understand most of that but could you give an example of a passive index fund? How does a passive index fund differ from a normal index fund?

Passive would be the opposite of active in an investment sense. Generally an active index fund is one where the manager actively buys and sells securities and attempts to beat the market, a passive manager will buy an appropriate holding and hold it long term. There is no empirical evidence to suggest active funds outperform passive ones but they charge considerably higher fees and hence the net return tends to be lower.

A good passive fund would be something like the Vanguard Total Stock Market Index (VTSAX) which charges only 0.05% in fees but taps into the entire U.S. stock market.

FURET

Dwarf.Shortage wrote: »

A good passive fund would be something like the Vanguard Total Stock Market Index (VTSAX) which charges only 0.05% in fees but taps into the entire U.S. stock market.

Correct. I'm not resident in Ireland but I'm pretty sure Vanguard funds are not yet available there. But Vanguard - or something like Vanguard - with a very low TER is optimal.

In one of the screenshots above, I showed the enormous difference made by just 1% of cost. With Vanguard charging a tiny 0.05%, the savings over an investment lifetime can easily reach six figures.

bappelbe

The future value calculator at calculatorsoup.com is also helpful see:
http://www.calculatorsoup.com/calculators/financial/future-value-calculator.php

This allows input an increasing contribution as you might expect your salary to increase over the 30 years by say 5% (put into G). Note: set q to 1 for 1 contribution per year.
This gives you an idea of what to be saving now and plan to save in the future.

Dwarf.Shortage

FURET wrote: »

Correct. I'm not resident in Ireland but I'm pretty sure Vanguard funds are not yet available there. But Vanguard - or something like Vanguard - with a very low TER is optimal.

In one of the screenshots above, I showed the enormous difference made by just 1% of cost. With Vanguard charging a tiny 0.05%, the savings over an investment lifetime can easily reach six figures.

It escapes me how active managers still attract money with the amount of evidence it's snake oil, particularly net of fees.

FURET

Dwarf.Shortage wrote: »

It escapes me how active managers still attract money with the amount of evidence it's snake oil, particularly net of fees.

People find money very mysterious. They think you need to be a specialist to understand it. It's amazing the amount of highly competent people I come into contact with who have no idea how to invest or how to plan for their own retirement. Financial advisers have identified a lucrative market and thrive off people's ignorance.

Take the calculation I did at the start which projected a 2 million pension pot requirement.

Firstly, most people don't know how to arrive at that figure, and assume some specialist knowledge is required.

Secondly, people become unnerved at the very idea of having 2 million euros. It excites them and they can't believe it. They think they could never grow their money to that level, because they don't understand how compounding works and they don't know how stocks work.

So they just assume there's some specialist way of doing it that they could never master without doing loads of academic study; and they assume that they absolutely require the services of a professional. Then they trust the professional's advice, much like people trust a doctor's advice.

The financial adviser "strongly recommends" active fund "Chinese Tycoon" or some BS like that, in reality because he will get a nice commission from the fund provider. The poor sop who is being misled by the adviser trusts his adviser and outsources the responsibility to him.

Blacktie.

FURET wrote: »

Correct. I'm not resident in Ireland but I'm pretty sure Vanguard funds are not yet available there. But Vanguard - or something like Vanguard - with a very low TER is optimal.

They are. I'm currently invest in 3 of their funds.

FURET

Blacktie. wrote: »

They are. I'm currently invest in 3 of their funds.

I don't see Vanguard Ireland listed here: https://www.institutional.vanguard.co.uk/portal/site/home

...so which funds are you accessing? And are you doing it through an employer plan or a self-directed plan?

zl1whqvjs75cdy

Any decent reading on pension fund planning anyone would care to recommend? Not particularly scared of financial jargon and would consider myself slightly better than a beginner. That 1% calculation from the previous page is pretty stark and has made me determined to do the work on my own pension. (Still only 25 so time yet but I'd like to start by the time I'm 28 or so.

Blacktie.

FURET wrote:

...so which funds are you accessing? And are you doing it through an employer plan or a self-directed plan?

It's self directed through saxo bank. Got shares with voo, vgk and bnd.

FURET

Blacktie. wrote: »

It's self directed through saxo bank. Got shares with voo, vgk and bnd.

Ah, but those are Vanguard ETFs. Vanguard mutual funds are not available in Ireland.

candlemouse

great. How did you come up with 2.5% ? Is there anywhere I can view or calculate the average rate of Irish, (and other countries) inflation for each the past 5, 10, 15, 20, 25 and 30 years ?

Also, How much attention are people giving to responsible investing in either passive or active mode ? Do people REALLY care if their money is been invested in sweatshops, companies whose current official address is a developing nation so tax can be avoided, companies who manufacture arms components, companies who move in and buy developing or developed countries water, companies who manufacture fish fingers using fish caught by over fishing ?
For example, the arms used by terrorist are manufactured by many companies of which these companies will have many customers. Or the sugar / soya industry, do people care if the sugar, soya in the food products they eat comes from genetically modified seed ??

Do people really care about such things given the near impossible task of building nest egg ?

And if you gone that far are there websites which show what companies make up a particular fund ?

on their behalf in e.g. What is the best way to view the compaines within a particular fund ? only view the relationship manger

robp

candlemouse wrote: »

great. How did you come up with 2.5% ? Is there anywhere I can view or calculate the average rate of Irish, (and other countries) inflation for each the past 5, 10, 15, 20, 25 and 30 years ?

Also, How much attention are people giving to responsible investing in either passive or active mode ? Do people REALLY care if their money is been invested in sweatshops, companies whose current official address is a developing nation so tax can be avoided, companies who manufacture arms components, companies who move in and buy developing or developed countries water, companies who manufacture fish fingers using fish caught by over fishing ?
For example, the arms used by terrorist are manufactured by many companies of which these companies will have many customers. Or the sugar / soya industry, do people care if the sugar, soya in the food products they eat comes from genetically modified seed ??

Do people really care about such things given the near impossible task of building nest egg ?

And if you gone that far are there websites which show what companies make up a particular fund ?

on their behalf in e.g. What is the best way to view the compaines within a particular fund ? only view the relationship manger

There can be periods of very high inflation like the 1970s. It is very hard to see what occur 25 years down the line.

There certainly are many passive index funds that can exclude certain industries. Often there are general parameters but also you have others that specialise in green or claimed green industries. These should always let you know what companies they include. Other times you are covered by EU regulations. For example there are restrictions on European companies selling arms to North Korea, China or Syria.

FURET

When it comes to investing, past is not necessarily prologue. I have chosen 2.5% for the sake of the calculation - the average inflation over the next 30 years might be 1%, 3%, or 4%. I think 2.5-3% is most likely, but there's no way to tell. It's best to assume unfavorable outcomes (higher inflation, lower returns) when doing your retirement planning calculations.

Personally, I buy the US and Developed Europe indices, and I do not exclude aerospace and defense, textiles, and tobacco. But if you are interested in this sort of thing, check out this short article from Andrew Hallam: http://assetbuilder.com/andrew_hallam/building_a_low_cost_portfolio_with_socially_responsible_funds

Dwarf.Shortage

FURET wrote: »

When it comes to investing, past is not necessarily prologue. I have chosen 2.5% for the sake of the calculation - the average inflation over the next 30 years might be 1%, 3%, or 4%. I think 2.5-3% is most likely, but there's no way to tell. It's best to assume unfavorable outcomes (higher inflation, lower returns) when doing your retirement planning calculations.

Personally, I buy the US and Developed Europe indices, and I do not exclude aerospace and defense, textiles, and tobacco. But if you are interested in this sort of thing, check out this short article from Andrew Hallam: http://assetbuilder.com/andrew_hallam/building_a_low_cost_portfolio_with_socially_responsible_funds

Sin stocks like tobacco, gambling, alcohol etc are avoided by a lot of institutional investors as their clients can get all ethical on them. Because of this reduced demand they have to pay higher dividends to attract funds and have beaten the market fairly reliably in the long run. Anyone who is young enough to hold them for 20+ years could do a lot worse than build a portfolio of diversified sin stocks and reinvesting the dividends. The compound growth would be incredible.

candlemouse

FURET wrote: »

...That extra 1% cost has turned the 7.6% return into 6.6%, and cost 627k euro, which mostly likely went into the pocket of your financial adviser or some fund manager....

How ?

bappelbe

candlemouse wrote: »

How ?

That is how the figures run out on the calculator, a typical pension (PRSA) charges 1% per year of the fund value and 3-5% on contributions. They seem small when they are getting you to sign up! but add up as you can see.

On your inflation question - the ECB targets "close to but less than 2%" inflation so if that continues and we stay in the Eurozone for the 30 years I would expect it to be about there. Most pension calculators work on 3% inflation giving a margin of safety.

Seamu$

candlemouse wrote: »

Hi team,

We often hear it said that xx in such a year would equate to xx in todays money. How is that calcuated ? Euro's please even though the euro wasn't around back then and no guarantee it will be around either!!

The Consumer Price Index (CPI) is the official measurement of how much xx in a certain year is worth now in Ireland. It is all historical info so not useful for your questions about future inflation.

http://www.cso.ie/en/statistics/prices/consumerpriceindex/

candlemouse

Many thanks one and all for answering my questions and for 'all' the additional insights. Accepting that this is required life information could it be that because we live in a capitalist society that if it was mandated for this level of detail to be taught in schools that other 'models' would also have to be thought and thus be seen as corrupting the youth! your sons and daughters, your grand children! lol show me the money! many thanks again.

Dwarf.Shortage

Buy low, sell high, get higher.