You may have an idea of how prices will look in the future, but chances are, inflation will make costs more insane than you think.

Let’s Talk About This Thing Called Inflation

Okay, so inflation. Inflation is an economic concept that affects all aspects of life, from the cost of goods and services to the value of investments. It is an important indicator used to measure the rate at which the general level of prices for goods and services in an economy are rising or falling. This rate can be determined by measuring changes in a price index, such as the Consumer Price Index (CPI).

When inflation occurs, it indicates that purchasing power has decreased. This means that it takes more money to purchase the same amount of goods and services than it did before inflation occurred. In extreme cases, runaway inflation can cause hyperinflation, which can have devastating effects on an economy. To counteract this phenomenon, governments may use monetary retaliation like increased interest rates to reduce aggregate demand, or raising taxes to decrease supply. These measures help keep inflation in check and promote long-term economic growth.

Inflation becomes problematic when it rises too quickly or is too high for an extended period of time. If this happens, businesses may raise their prices even further in order to remain profitable, while citizens gradually lose more purchasing power. High inflation erodes the value of savings and investments, reducing the incentive for investors to put money into long-term projects which only serves to weaken economic growth potential.

In other words, inflation is a complicated balancing game.

https://www.youtube.com/watch?v=CGMgRVJZjGI&feature=youtu.be

What Has Inflation Been Like Lately?

According to Macro Trends, a resource which compiles statistical trends within the United States, offers us this means of measuring inflation:

“Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.”

And per the US Inflation Calculator, the last five years of inflation rates (averaged per year) are as follows:

• 2022 - 8.0%
• 2021 - 4.7%
• 2020 - 1.2%
• 2019 - 1.8%
• 2018 - 2.4%

Now, these numbers can be a bit tricky to parse out. As we mentioned, these were the average inflation rates for each year, which means that on a month-by-month basis, inflation may have been significantly better or worse than that year’s final average. For example, December 2021 saw a dramatic increase up to 7.0%, 2.3% higher than the yearly average.

2021 and 2022 have, obviously enough, considerably higher inflation rates compared to the preceding years. This phenomenon was mainly caused by the COVID-19 pandemic which had a significant impact on global economic activity and how that rippled out to affect nearly every aspect of our world.

The increase of inflation can be attributed to several factors such as an increase in government spending, reduced labor supply due to lockdowns and restrictions imposed on businesses, disruption in international trade networks, rise in commodity prices due to supply shortages and increased demand from consumers who were stockpiling goods during the pandemic period. The combination of these factors made it difficult for governments to control inflation rates through traditional monetary policy measures such as cutting interest rates or printing additional cash money.

Time to Run Some Numbers

Let’s dip into some hypothetical situations for a bit. This is an exercise in projected assessments for value and cost. We are not psychic, nor can we predict the future, so we can’t promise all the inflation rates we work with will line up exactly with reality, but we can make reasonable estimates that, barring some massive, unpredictable change (like Covid-19 was), will land us in the ballpark we want. Assuming that every year going forward will be somewhere between the averages of 2021 and 2022, we’re going to use 6% and a more optimistic 3% in determining our numbers.

What Things Will Probably End Up Costing You 10 Years From Now

Now, we’re about to hit you with a lot of information, so we want to start with a baseline so you know in broad terms how money expenses will look. For every $100 spent today, in 10 years it will end up being $134 at 3% and $179 at 6%. So if your monthly overhead is $3,000 a month, in 10 years, you can expect to be spending around $4,032 at 3% and $5,373 at 6%.

Here is a breakdown of what each of these individual items will probably end up costing 10 years from now. 

McDonalds - Obviously everyone’s orders are different, but for this example we’re going to work with a $9 order. 10 years from now, a $9 McDonald’s order will cost, at a 3% inflation rate, approximately $12. At a 6% inflation rate, it’ll cost $16.

A Gallon of Milk - At the time of this writing, in Austin, TX, a gallon of milk goes for $4. At 3% and 6%, that would give us $5 and $7, respectively.

Eggs - Currently $3.59 (nearly double what it was six months ago), at 3% growth this will be $5 and $7 at 6%

Tennis Shoes - I recently bought a solid, relatively modest pair of tennis shoes for $45. Using that as our baseline, in ten years at a 3% inflation rate, they’ll go for $60, and at 6% they’ll go for $81.

Gasoline - Gas is a little bit trickier to quantify, since it fluctuates so much on a month-by-month basis. However, right now I pay $2.98 per gallon, which I know from recent travels is actually not too bad. A full tank is $47, so in 10 years, that’ll be $63 at 3%, and $84 at 6%.

A Car - Using a brand new, common model of car is probably the best approach to this, so we’ll take the Honda Civic, which currently runs for $26,000. At 3% it’ll go for $34,900 and at 6% it’ll be $46,500. In 2009 a similar model went for $15,600.

Car Payments - The average American car payment is approximately $615 per month. At 3% that’s $827 and at 6% that’s $1,101.

Car Insurance - The average American’s car insurance is $1,630 per year. At 3% that’s $2,119 and at 6% that’s $2,919

Rent - In Austin, the average 1B1B goes for about $1,800. 10 years, at 3% that would be $2,419 and at 6% it’s $3,294. In 2010, a similar unit would have gone for $783.

Homes - In Austin, TX the current average for a house is $599,000. We’ll round that up to a clean $600,000 for our purposes. At 3%, 10 years from now that house will be worth $806,000, and at 6% it’ll be worth $1,074,000. Almost twice as much. A home of similar size and features would have cost $211,800 in 2010.

Phone - The average American phone bill is $114 per month. In 10 years at 3%, that’s $153 and 6% it’s $204.

Utilities - Average cost of utilities in Austin, TX is $150. At 3% that’s $202 and at 6% it’s $269.

Internet - Average cost of a normal Spectrum plan is $35. At 3% that’s $47 and at 6% it’s $63.

Restaurants - One of my favorite restaurants in Austin, TX is Ramen Tatsuya. An entree, side, and drink usually land me around $25. At 3% that’s $34 and at 6% it’s $45.

Dental Insurance - Average dental insurance without any assistance provided by an employer lands around $47 a month. At 3% this is $63 and at 6% it’s $84.

Health Insurance - Average health insurance without any assistance provided by an employer lands around $456 a month. At 3% this is $613 and at 6% it’s $817. In 2010, a similar health care plan (health care plans change a lot, so keep that in mind) ran about $92.

Vision Insurance - Average vision insurance lands around $15 a month. At 3% this is $20 and at 6% it’s $27.

Life Insurance - The average cost of life insurance is $26 a month. At 3% that’s $35, at 6% it’s $47.

Long Term Care Insurance - For an Average 55-year-old American, they can expect a long term care insurance premium of about $2,220 a year. At 3% this becomes $2,983 and at 6% it’s $3,976.

Digital Subscriptions (Hulu, Disney+, Netflix, Spotify, etc.) - At the time of this writing, a standard Netflix plan runs at $16, Disney+ is $10, Hulu is $8, and Spotify is $10. Since people usually have several subscriptions active, let’s take these four together for a total of $44. In 10 years, at 3% that’s $59 and at 6% it’s $79.

Pet food and supplies - I have a corgi. A bag of dog food, snacks, and a couple toys tends to land me around $65. At 3% this is $87 and at 6% it’s $116.

Haircut - Since this is typically a larger expense for women, we’re going to focus on their hair cuts. An average women’s haircut at local salon “Urban Betty,” which is “run by women, for women,” is listed at $79. Assuming there were no products or other services rendered, at 3% this would become $106 and at 6% it’d be $141.

Trip to the Movies - If you want to catch the release of a new film on opening weekend, you can expect to pay about $17 for a show. At 3% that’s $23 and 6% it’s $30.

“In some metropolitan areas like Los Angeles, you may not see inflation directly impact the cost of items each year, especially when it comes to businesses that are providing you with goods, services or food at a local restaurant,” says Leonard Kim of AdvisorCheck. “For example, while the cost of a restaurant serving all you can eat Korean bbq could have a consistent price of $30 for many years, they could take on the impact of inflation for the consumer for a while, but when it gets to a strenuous point, they could change their pricing completely to $39 and account for multiple years of inflation at one point in time. Another example is with Coca Cola. When I was growing up, a can of Coca Cola was 25 cents. A few years ago, that same can was 75 cents, while a 16 ounce can was 99 cents. Now, that 16 ounce can is $2.25 to $2.50, depending on which convenience store you go to,” Leonard Kim continued.

What Things Will Probably End Up Costing You 20 Years From Now

Like before, we figure it’s best to give you a broad idea of how, for every $100 spent today, in 20 years it will end up being $181 at 3% and $321 at 6%. So if your monthly overhead is $3,000 a month, in 20 years, you can expect to be spending around $5,418 at 3% and $9,621 at 6%.

Here is a breakdown of what each of these individual items will probably end up costing 20 years from now.

McDonalds - Let’s go further. 20 years from now, that same $9 order will now run us at $16 under a 3% inflation rate, and $29 at 6%.

A Gallon of Milk - In 20 years, a $4 gallon of milk will be worth $7 at a 3% inflation rate, and $13 at 6% inflation rate.

Eggs - At 3% eggs will go for $7, at 6% they’ll go for $13.

Tennis Shoes - In 20 years, my $45 tennis shoes I just purchased will be $81 at 3% and $144 at 6%. Oof.

Gasoline - My $47 tank of gas will run $85 at 3% and $151 at 6%.

A Car - In 20 years, the $26,000 Honda Civic will run $50,000 at a 3% annual inflation increase, and $83,300 at 6%.

Car Payments - The average American car payment is approximately $615 per month. At 3% that’s $1,111 and at 6% that’s $1,972.

Car Insurance - The average American’s car insurance is $1,630 per year. At 3% that’s $2,944 and at 6% that’s $5,228

Rent - In Austin, the average 1B1B goes for about $1,800. In 20 years, at 3% that would be $2,419 and at 6% it’s $3,294.

Homes - An average Austin house goes for $600,000, but in 20 years at 3% annual inflation rate, it’ll be worth $1,083,000, and at 6%, $1,924,000. 

Phone - The average American phone bill is $114 per month. In 20 years at 3%, that’s $206 and 6% it’s $366.

Utilities - Average cost of utilities in Austin, TX is $150. At 3% that’s $271 and at 6% it’s $481.

Internet - Average cost of a normal Spectrum plan is $35. At 3% that’s $63 and at 6% it’s $112.

Restaurants - One of my favorite restaurants in Austin, TX is Ramen Tatsuya. An entree, side, and drink usually land me around $25. At 3% that’s $45 and at 6% it’s $80.

Dental Insurance - Average dental insurance without any assistance provided by an employer lands around $47 a month. At 3% this is $85 and at 6% it’s $151.

Health Insurance - Average health insurance without any assistance provided by an employer lands around $456 a month. At 3% this is $824 and at 6% it’s $1,462

Vision Insurance - Average vision insurance lands around $15 a month. At 3% this is $27 and at 6% it’s $48.

Life Insurance - The average cost of life insurance is $26 a month. At 3% that’s $47, at 6% it’s $83.

Long Term Care Insurance - For an Average 55-year-old American, they can expect a long term care insurance premium of about $2,220 a year. At 3% this becomes $4,010 and at 6% it’s $7,120.

Digital Subscriptions (Hulu, Disney+, Netflix, Spotify, etc.) - At the time of this writing, a standard Netflix plan runs at $16, Disney+ is $10, Hulu is $8, and Spotify is $10. Since people usually have several subscriptions active, let’s take these four together for a total of $44. In 10 years, at 3% that’s $79 and at 6% it’s $141.

Pet food and supplies - I have a corgi. A bag of dog food, snacks, and a couple toys tends to land me around $65. At 3% this is $117 and at 6% it’s $208.

Haircut - Since this is typically a larger expense for women, we’re going to focus on their hair cuts. An average women’s haircut at local salon “Urban Betty,” which is “run by women, for women,” is listed at $79. Assuming there were no products or other services rendered, at 3% this would become $143 and at 6% it’d be $253.

Trip to the Movies - If you want to catch the release of a new film on opening weekend, you can expect to pay about $17 for a show. At 3% that’s $31 and 6% it’s $55.

What Does This Mean for My Retirement?

Let’s say you’re thinking about saving up a million dollars for retirement, which will last you from the age of 65 to 85. That leaves you with $50,000 a year for your entire household. Assuming you need about $40,000 a year to do what you do now, and you aren’t retiring for another 20 years, that means at a compound interest rate of 3%, you’d need a retirement income of $72,000/year at the START of your retirement to uphold your current standard of living. By the end of the 20 years, it’ll be $130,000. That’s…much more than the $50,000 that saving up a million dollars will bring you.

The more realistic answer is that if you want to uphold a standard of living that $40,000 can bring you today, then by the time you retire (20 years from now, to keep with the example) you’d need approximately $2,600,000. If your lifestyle is more demanding than that, then you can expect your retirement requirements to be even higher.

Unfortunately, that’s not the end. You also have to factor in things you won’t have anymore, like employer assisted health care, or things you will need to buy, such as long term care insurance, and other insurances. 

And all of that isn’t even accounting for the fact that inflation makes no promises of staying at the 3% we used in this example. 2022 saw inflation average at 8%. Who knows what 2023 will look like.

“If you plan to retire in 10 or 20 years, you can’t account for how much you are spending in today’s time,” says Leonard Kim. “There are so many variables when it comes to life that the only way to ensure you are on track for a comfortable future is the accommodate for what things will end up costing when you retire. Costs will continue to increase and there’s nothing that we can really do about it, except to save and invest more money,” Leonard Kim continued.

So…I’m Freaking Out a Little

We promise, we’re not trying to give you a panic attack, though we recognize that this is alarming. But that’s why it’s better that you hear all of this now, while you still have time to course-correct and prepare yourself for future expenses.

Of course, we don’t expect you to perform a dramatic upheaval of your entire lifestyle overnight, but you owe it to yourself (and any partners/children you may have) to do what you can to start adjusting and saving for your eventual retirement. It’s also important to factor in various risks that could arise in the future as well.

Also, you aren’t alone. According to a report from CNBC, 34% of Millennials claim that they feel behind on their retirement preparations. Gen X isn’t looking a whole lot better, and the jury is out on what Boomers are doing. According to Forbes, there are a ton of people retiring from that generation, but according to Investopedia, quite a few of them didn’t make it to retirement age with adequate savings, and so many are picking up work again.

If you want to make the changes to help yourself, but don’t know where or how to start, that’s where a trained financial advisor can offer the guidance you need or peace of mind.

Already have a financial advisor? Ensure you’re making the right call by following their professional conduct through our free AdvisorCheck membership. If you don’t have one yet, find a financial advisor now and work with them to reach your peak financial health. You can find a financial advisor near you by utilizing our search tool. 

The world will be different in 20 years. But you can be, too.

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Written by Cooper Barham

Fact Checked by Billy Quirk

Reviewed by KJ Kim

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