F. Now, lets calculate the amount of retirement income you need to provide by saving and investing in the first year of your retirement. This is where we see the big impact inflation will have.

Enter these amounts into your financial calculator (remember Chapter 3?):

PV = amount on line [D]

N = years you provided on line [A]

I/Y = 4%³

CPT FV

Enter the result (the future value) to the right. It may blow you away, especially if retirement is decades away! This is the amount of income youll need to withdraw from your retirement savings in the first year of retirement to meet your retirement income goal set above on line [B], in future dollars.

Note: This assumes that the other sources of income youre expecting also grow with inflation over time.

³ Here, the I is the estimated average inflation rate. I like to use 4%, based on long term averages. You could go with a higher rate for a more conservative or safer projection.