A common dilemma I hit is 'will I enjoy this money now more, or should I invest it to get more later?' A key factor in those decisions is exactly how much the money will be worth in the future.

I tend to think of it in terms of retirement salary. What monthly income will I get 20 years from now from $5000 today?

To determine this, I wrote a FIRE calculator. If you aren't familiar, FIRE stands for 'Financial Independence, Retire Early'. The basic logic for this calculator is:

- take investment inputs
- take S&P 500 and inflation data
- apply investment inputs to every period in the S&P 500 historical data
- multiply the resulting balance by the withdrawal rate to get a monthly income

This gives you a distribution of results that exactly matches the historical distribution. The tool is below:

Current Amount ($)

Yearly Deposit ($)

Years to Retirement

Inflation Ajusted?

To interpret this...the median line is the median historical performance. 50% one spans 25% to 75%. 25% of historical periods performed better than the top of the 50% region. 25% of historical periods performed worse than the bottom of the 50% region.

As an example, try starting with $10,000 and investing $10,000/year for 20 years and checking 'Inflation Adjusted?'. You get a median of ~$1200/month. What that means is that if you made this investment using every possible historical starting point, you'd end up with ~$360,000 in real (inflation-adjusted) dollars. A 4% withdrawal rate from $360,000 gives you 0.04*(1/12)*360,000 or ~$1200/month.

50% of all historical periods yielded monthly equivalents of $820 to $1800/month.

How do I actually use this?

Consider this reasonable situation...

As an example, try starting with $10,000 and investing $10,000/year for 20 years and checking 'Inflation Adjusted?'. You get a median of ~$1200/month. What that means is that if you made this investment using every possible historical starting point, you'd end up with ~$360,000 in real (inflation-adjusted) dollars. A 4% withdrawal rate from $360,000 gives you 0.04*(1/12)*360,000 or ~$1200/month.

50% of all historical periods yielded monthly equivalents of $820 to $1800/month.

How do I actually use this?

Consider this reasonable situation...

- I dislike my current house
- It will cost me ~$4,000 over the next two years to move
- Is it worth it?

Assuming I retire in 20 years, that $4,000 now is worth ~$53/month in retirement. I can then decide if my happiness from the better living situation is worth $53/month in perpetuity.

One more use...

Imagine you're considering an annuity. The terms are:

Imagine you're considering an annuity. The terms are:

- invest $1,000,000 now
- wait 10 years
- receive $3,000/month for the rest of your life

Is that a good deal? Just plug it into the calculator. 95% of the time, you'd end up with more than $3600/month. The annuity will only possibly be useful during the worst of the market's history. Do you really trust that the annuity company will stay in business throughout one of worst decades in history for the stock market? Much worse...50% of the time, you'd end up with more than $8600/month. You'd miss out on so much potential gain with the annuity.

Thinking about money now as its future value can be really helpful.

Thinking about money now as its future value can be really helpful.

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