How a $1 will be worth $0.12 in 2040?

Disclaimer - I have a kid now. He's 3 days shy of 14 months as of writing this so while I do not have any money anymore, I do try to spend and invest his wisely. As such, I am often planning for ROIs measured in 2-3 decades, verses quarterly like Wall Street. So this may or may not apply to you and is definitely not investor advice. Rather, basic math with a wee bit of ChatGPT Ai sauce sprinkled between the common sense. Enjoy.

The below is taken from my recent interaction with ChagGPT. You can read the original chat here: https://chat.openai.com/share/fa34f79b-117d-4af8-8bd1-4ca4d228cf66

You

What was the purchase power of $1M dollars in 1990?

ChatGPT

To understand the purchasing power of $1 million in 1990 compared to today, we need to consider inflation over time. Inflation affects how much the same amount of money can buy at different times due to the general increase in prices and fall in the purchasing value of money.

We can use the Consumer Price Index (CPI) to adjust for inflation. Using the CPI, we can convert the 1990 value to today's dollars to reflect changes in purchasing power. Let's calculate this using the average historical inflation rates.

The purchasing power of $1 million in 1990 is approximately equivalent to $2.32 million in today's dollars, based on an average inflation rate of 2.5% per year. This means that what $1 million could buy in 1990 would require about $2.32 million to buy now.

You

Given the impact of inflation on the value of money, what will the purchase power of $1M dollars be in 2040?

ChatGPT

Based on the same average inflation rate of 2.5% per year, the purchasing power of $1 million in 2024 is expected to decrease to about $3.44 million by 2040. This means you would need approximately $3.44 million in 2040 to have the same buying power as $1 million today.

You

Doesn't that mean that the value of a dollar today will have been reduced by 300% by 2040?

ChatGPT

The phrasing of a "300% reduction" isn't quite accurate in this context. What actually happens is that the dollar depreciates in value due to inflation, so you need more dollars in the future to buy the same goods and services as today.

The correct interpretation is that the future value you need in 2040 ($3.44 million) represents an increase of about 244% over the original $1 million from 2024. This means the value of $1 million in 2024 has decreased such that it would only be equivalent to about $290,000 in 2040 dollars. This represents a decrease in purchasing power, but it's not accurate to say the value has been "reduced by 300%". Instead, it's correct to say that you need approximately 244% more money in 2040 to have the same purchasing power as $1 million today.

You

What would the numbers be for the above scenario if inflation was 8.5% instead of 2.5%?

ChatGPT

With an inflation rate of 8.5% per year, the purchasing power of $1 million in 2024 would be equivalent to needing about $8.54 million in 2040. This highlights how a higher inflation rate significantly decreases the value of money over time, requiring much more money to maintain the same purchasing power.

You

Doesn't that mean that the value of a dollar today will have been reduced by 800% by 2040?

ChatGPT

It's important to clarify how percentages are used in the context of inflation. Saying the value of a dollar has been "reduced by 800%" isn't quite accurate. Instead, what happens is that inflation causes the purchasing power of money to decrease, meaning you need more of it to buy the same things in the future.

In the scenario with an 8.5% inflation rate, the cost to maintain the same purchasing power increases significantly. If $1 million in 2024 requires about $8.54 million in 2040 to have the same purchasing power, this means the cost of maintaining that purchasing power has increased by about 754% (not 800%).

If we discuss the value of the dollar itself:

• $1 in 2024 will be equivalent to about $0.12 in 2040 dollars. This means the value of the dollar has diminished, but not by 800%. Instead, it indicates a decrease in value by about 88%, which aligns with needing significantly more money to maintain the same purchasing power in the future..

Conclusion

Real inflation is closer to 13% than it is to 11. You know this every time you got to buy groceries. Why does this matter and what does this mean to your retirement? Well, if you planned on saving $1M to retire in 20 years, that $1M will only be worth about $120k. Which means that unless you plan on dying the day after you retire (not that that isn't the case for many Americans) you're going to outlive your retirement. Um...I guess we should all start planning to cut back on the avocado toast and sidewinder/surface to air missiles pretty soon, no?

About the Author

Samson is an internationally recognized anthropologist for his work in monetizing the social and cultural drivers of digital economies; specifically for blockchain, cryptocurrencies and the Space Economy. While Samson is ranked among the globe’s top innovative technology professionals for his cutting-edge research and applications in crowdfunding, tokenomics and digital securities you should take everything he says with a grain of salt, as he is first and foremost a landlord. When not collecting 40% to 60% of people’s hard earned money via rent, Samson is a professor at the University of New Hampshire School of Law, Instructor at Columbia University and Partner at MilkyWayEconomy, Washington DC’s premier Space think tank and VC firm. For business inquiries Samson can be reached on social @HustleFundBaby.