Calculate inflation

20122013

I hope this is the right board for my post. 

If I need £40K per year for the next 45 years, is there a way to find out the total I would need including inflation of 3% or more.  So I know roughly the figure I need to aim for..

As £40,000 x 45 years = £1.8m but not sure how to work out the inflation, and want to make sure I use the correct calculation.  

PS:  on the internet
'The value of the $1 million today is the value of $1 million discounted at the inflation rate of 3.2% for 40 years, i.e., 1 , 000 , 000 ( 1 + 3.2 % ) 40 = £283,669.15.'
Source: https://homework.study.com/explanation/good-news-you-will-almost-certainly-be-a-millionaire-by-the-time-you-retire-in-40-years-bad-news-the-inflation-rate-over-your-lifetime-will-average-about-3-2-a-what-will-be-the-real-value-of-1-m.html#:~:text=The value of the $1,% ) 40 = 283 , 669.15

QrizB

I'd use the gilt ladder tool to build a £40k, 45 year ladder of index-linked gilts. See what it would cost to buy today and there's your answer.

https://lategenxer.streamlit.app/Gilt_Ladder

Edit: a bit of faffing about with my phone and I get £1.28M as one possible answer.

20122013

QrizB 

Do you mean I need  £1.28M in today's money to invest or something else?

Albermarle

If your money is invested correctly than you can be pretty confident that it will at least increase in line with inflation over the long term, so neutralising the effects.

You would probably be better looking at Safe Withdrawal rates. This is not an exact science, but can be a useful rule of thumb.
In basic terms and using historical data, it says a UK investor can withdraw 3.5% a year adjusted each year with inflation and after 30 years the chance of the pot running out is <5%,In fact it is quite likely you will die with more than you started with, as there is a big safety factor in the calculations.
As you are looking at an even longer time scale you might want to use a 3% withdrawal rate to be safe. So the pot would need to be in the region of 1.35 Million
The withdrawal rates are calculated on the pot being invested in something like 50% equities , 40% bonds, 10% cash.
Opinions vary on some of the figures but as said can be  useful as a rule of thumb. 

Marcon

OP - are you being realistic? Your previous thread doesn't give any indication that you are in any position to get £40K a year https://forums.moneysavingexpert.com/discussion/6593351/ratio#latest

Sometimes adjusting aspirations to match reality can save a lot of disappointment.

QrizB

20122013 said:

QrizB
Do you mean I need  £1.28M in today's money to invest or something else?

Yes. If you were to invest £1.28M in a ladder of index-linked gilts today, you be guaranteed £40k increasing annually with inflation for the next 45 years.

20122013

@Albermarle

Interesting that with the figure I had worked out is £40,000 x 45 years = £1.8m  which is much more than £1.35m. All is well. as less is better. 

1. May I check the calculation of 3% withdraw would be £1.35m x 3/100 = £40500 pa.  and do something similiar to a 'saving ladder' 

2. As I have 10 - 15 years to invest.  I will rebalance my assets at the same time, switch platform and choosing the funds that may provide the income I need either from my investment and or savings  from the next few years onwards and will have a contingency plan. 

3. I will also look into BOND (in particular government bonds) as it seems to be less volatile  than equities  but for some reason I do not think it is a good time to invest in due to inflation? I am not understanding it as well as I would like so will read some more. 

leosayer

Is that £40k net or gross?

20122013

@ leosayer 
it is £40K net pa

Stubod

...does that £40k include income from your State Pension????......ie if that is 12k pa, (give or take), you "only need" £28k???)...

20122013

Stubod  £40k net pa. does not include my small pension.
In a few years the bills should drop (as I am selling my property) but this amount will quickly be spent elsewhere as I may need it to travel abroad to see family.