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SALT LAKE CITY -- It's a goal that many people have: retiring a millionaire. But adding inflation into the mix, how much will you really have to save to have the equivalent of a million dollars in the future? When it comes to the economy, mapping out what could happen seems much easier than predicting what will happen. Economists say inflation has been averaging between 2.5 percent and 4 percent every year since the 1980s, with some exceptions. Zions Bank economist Jeff Thredgold says inflation was at a paltry 0.1 percent in 2008. In 2009, it was kept at 2.7 percent. So far this year, it has been around 1.2 percent.
Today's equivalent of $1 million in future
|1.5%||$1.2 million||$1.4 million|
|3%||$1.35 million||$1.9 million|
|5%||$1.63 million||$2.65 million|
Thredgold says, "If you look at what we call ‘core inflation,' which excludes food and energy prices, prices in the last 12 months are up 0.6 percent, which is the smallest increase in more than 50 years."
Over the years, $1 million has lost a lot of purchasing power. If you had $1 million back in 1950, it would be like having over $9.07 million today.
"If we end up in the inflation mess that some would suggest, then you're going to have to see substantially higher amounts to equate to a million or a half million [dollars] in purchasing power today," explains Thredgold. So, if you want to save the equivalent of a million bucks in 10 or 20 years, how much will you have to save? Let's say inflation stays around 3 percent.
Thredgold says, "You'd have to have just under $1.35 million in 10 years. You'd have to have just under $1.9 million in 20 years."
But Thredgold says there's a big debate over whether the country will go through inflation or deflation. People who think we're heading for inflation are buying gold and other commodities, while people who think we're heading for deflation are snatching up high-quality bonds. Thredgold says, "I would make the case that the Federal Reserve, right now, is more concerned about deflation than they are about inflation."
He says lower prices may seem nice, but they're normally followed by lower incomes. He says we've already seen deflation in land, and falling prices in housing and commercial real estate. Plus, he says deflation is harder to get out of than inflation. Many economists point out that Japan went through eight years of deflation after their housing market bubble burst.