The $850 carSubmitted by Financial Planning Solutions, LLC on April 25th, 2019
Back in July 15, 1903, the Ford Motor Company took its first order for a Model A. Selling price? A whopping $850. This car did not have a top, had two cylinders, and could reach a top speed of 30 miles per hour. (Granted, you were probably taking your life in your hands if you went any faster).
Now, $850 might sound pretty cheap for a new car but bear in mind it was 1903 and the average wage was about 25 cents an hour and an average house in the US was about $5,000.
Cars and houses have certainly improved in many ways and along with those improvements came higher prices.
This, my friend, is called inflation. Inflation in its simplest definition is the rate in which prices for goods and services rise over time. Inflation doesn't rise steadily each year and some years we have had very low inflation (like this past year) and you might remember periods of very high inflation (like in 1980).
When one is considering a lifestyle sustaining income in retirement, one must factor in inflation. If, for example you spent a week in Hawaii this past year at a cost of $5,000, you can only imagine the cost 20 years from now will be higher. How much higher? Well, no one knows for sure but if inflation averages at around 3.25% over the next 20 years, that same vacation could be close to $10,000.
The same applies for most things. Food, clothing, college, and that new car. Well, in 20 years, that new car might do the driving for you at least.
If you are concerned about running out of money in retirement, give me a call and we can walk through it together.
Any questions? Feel free to reach out to me.
All the best.
Rick Fingerman, CFP®
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