Since YMOYL was written the US has to a large extent exported its inflation. This is possible insofar the USD remains the world's reserve currency.
The process is simple. The US imports goods and pays with dollars. The exporting country keeps the dollars rather than sending the dollars back to the US which would increase demand and increase prices. The exporting country may also send the money back and buy treasuries instead. This keeps borrowing costs down domestically.
Any bets on how long this "easy consumer credit scheme" is going to continue?
I think all these extrapolations based on ROI are a long shot at best. Just figure "you need $500k" in present value and go from that. Usually there is no such thing as a free lunch. Figure 3% real returns. During the accumulation face, even if it lasts a decade, 3% real returns is only going to add 15-20% tail wind which is approximately equal to 1-2 years of savings. Any calculations using 10% etc. is a party trick. Nominal values are not relevant.
I don't think the USD is going anywhere from being the basis. When the oil states talked about changing the currency base to Euros, the world economy took a dump.
The euro took an even larger one and now the less stinky currency is still the USD...again.
Don't see USD going anywhere
@Jacob: actually 10% does make sense: 10% = 4% inflation + 3% dividends + 3% stock appreciation or economic growth.
@Steve: inflation is irrelevant. For calculations, measure everything in today's dollars and you can forget inflation. Then, in practice, you do the following. Say, Future Doctor wants 500k in today's purchasing power after 10 years of saving 50k/year. So in practice she saves
50k in year 1,
51k in year 2,
53k in year 3,
...
80k in year 10
The amounts all have the same purchasing power. The amounts are adjusted upward to reflect the fact that everything goes up in price each year (=inflation). She isn't really saving "more" because her salary will be "more" too (also follows inflation, if not outperforms it).
At the end of the 10 years she may find she has 750k (which will buy then what 500k does today) and a passive income of 23k (which will buy what 15k does today).
I hope this clears up any mist around the inflation topic.
Concojones, not sure I agree that it's irrelevant when you've suggested an outlook that accounts for it. Perhaps you mean that it's accounted for and not otherwise a factor in one's planning. But I roughly follow the principle of what you've suggested, with the following minor nits / requests for clarification:
* saving an additional 1k beyond what was saved in the previous year, such that the next after year 3 in your 10 year series would be 56k in year 4? I don't get 80k in year 10 though, more like 95k.
* year 2 is a 2% increased savings rate over year 1, but year 10 is a 10% increased savings rate over year 9 -- I wonder if this could/should be inverted such that the big increases are baked in to the plan earlier, making it easier to taper/transition into low/no working sooner?
