formula to adjust for inflation, PV of future retirement $$

[bhpeters]

I'm try to figure out the formula for determining the present day equivalent of a future amount of money (adjusting for inflation). Specificially in determining retirement account growth as the years go on, how much would the value of money in X year (eg: 2037) be in today's dollars? I've already got the spreadsheet determining the value of the account based on contributions and rate of rate... but adjusting for inflation I cannot figure out.

I can't seem to find the formula... but it seems like there's got to be a predone template out there for something like this.


cells value
A1 retirement account value
B1 account value in today's dollars

thanks!

Heather

 

[mortgageman]

Inflation rate reducing makes it easier to save money. You are effectively earning more interest because your money isn't degenerating at the same time. The easier it is to invest, the less you have to put in now to have 3 million later.

Does this makes sense?

It sure does. That's why the OP (and me for that matter) expect the formula to predict more money when the I rate goes down.

Gene, "The Mortgage Man", Klein

 

[bhpeters]

I also found this formula

Present Value:
$18,000 * (1+.04)^-4 = $15,386.48 (showing that a payment of $18,000 4 years from now is worth about $15,000 today assuming 4% return or 4% inflation, right?)

from this website: http://www.investopedia.com/articles/03/082703.asp

It seems to be calculating things in a slightly different way

would this also be valid? I'm not looking for a "to the penny" analysis I guess, just a rough idea to remind me that being able to withdrawl $150,000 a year for retirement really isn't as rich as it sounds once that day comes.

Heather

 

[lostcowboy]

Hi guys, I know this is a old thread, but it looks like no one posted the correct answer. I think I found how to adjust your interest rate for inflation. You do not multiply the interest rate and the inflation rate together, rather you divide them. I believe that is true for both formulas. See the following link.http://www.investopedia.com/terms/i/inflation_adjusted_return.asp

 

[IowanFox]

This is the Formula for future value of retirement account with Inflation that I figured out.

=B56*((POWER(1+C56,D56)-POWER(1+A56,D56))/(C56-A56))

Where A56 is Inflation rate %
Where B56 is Initial Deposit $
Where C56 is Initial Interest %
Where D56 is number of years #