What $10,000 will be worth in 2, 10 and 20 years assuming a 3% constant rate of inflation.
This hypothetical example is for illustrative purposes only and does not represent any actual investment performance, price or yield. The rate of inflation may be higher or lower than the rate shown here.
When was the last time you thought about inflation? If you're like most people, it's been a while. That's because inflation, loosely defined as the decline in purchasing power of your money over time, has been running at low levels in recent years.
However, over time even mild inflation can eat away a substantial portion of your savings and investments. The chart below shows what $10,000 will be worth in 2, 10 and 20 years assuming a modest 3% rate of inflation. This means if you're planning for a 20-year retirement, you'll need almost twice as much money in your 20th year to maintain the same standard of living you enjoy in your first year of retirement.
That's one of the many reasons why it's so important to contribute as much as possible towards your retirement. And remember, any interest and/or investment earnings from your contributions accumulate on a tax-deferred basis until they are withdrawn.*
*Withdrawals are subject to income tax at your ordinary income tax rate at the time of withdrawal, and if made prior to age 59½, a 10% federal tax penalty.