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471 | Mailbag: Inflation and FI, ACA Subsidies, Roth vs. Trad and More | Cody Garrett
ChooseFI
Understanding Stock Market Returns and Inflation Impact
The average annualized total returns of the US stock market have historically been over 10%, but the inflation-adjusted real return has actually been 7%, showing a significant difference. Over long periods of time, this difference can have a substantial impact on maintaining purchasing power due to the compounding effect. Additionally, the 4% rule used to calculate retirement expenses accounts for inflation adjustments only once retirement distributions begin, not before, highlighting the need to consider inflation on the path to retirement as well. Failure to account for the 2% to 3% annualized inflation rate before retirement can lead to unpleasant surprises and falling behind financial goals.
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