I have a very hard time deciding how much money is enough for retirement, especially considering we don't know how much $1.00 will be worth when I expect to retire in 40 years (~2054). Inflation averages 3% a year, right? So if I had $3,000,000 in my retirement account by the day I retire and push it all into some sort of bond or CD that earns me 3% a year (perhaps wishful thinking, who knows what rates will be in 2050), I'd earn $90,000 a year. That seems like way more than enough money to retire on without having to take anything out of the principal balance... but, if 3%/yr inflation holds true, it'd only be worth $25800 in purchasing power. That's certainly livable, but isn't an extremely posh lifestyle either.
So, am I missing something? It seems like inflation would destroy any real chance of having a great retirement even if I had $3 million banked. I suppose the point would be to live off of the principal, not the income made from said principal via bond/CD-generated interest... but even then, $3,000,000 in 2054 money would feel more like $860,000; assuming I could earn 3% a year on it and have that come out to a net 0% gain (3% gain from interest, 3% loss from inflation) I'd still only have $29,000/yr if my fiancee and I lived for 30 years into retirement. That's actually not horrific by any means, but again, it'd require us to have $3,000,000 as a principal balance. Drop that down to $1,000,000 and we're talking about having barely $10,000/yr.
Can anyone point out a hole in my logic? The good news for me and my fiancee is that we're well-educated and have both been saving since we're teenagers, so even though we're only 25, we have savings more akin to people in their 40s... and I'm such a rampant save-a-holic, we should be saving at a much steeper rate than the average couple.
