The tax nobody votes on
Inflation compounds exactly like interest — against you. At 3%, prices double about every 24 years, which means a retirement starting at 65 and running to 95 needs its income to roughly double along the way just to stand still. That’s the planning insight most projections skip: the target isn’t a number, it’s a number in today’s purchasing power. Our FIRE calculator and compound interest tool both note this — use real (inflation-adjusted) returns with today’s expenses and the units stay honest.
The other practical use of this page: sanity-checking “safe” money. Cash in a 0.5% account during 3% inflation loses about 2.5% of buying power a year, guaranteed. High-yield savings that roughly match inflation turn that loss into a wash — which is exactly the job of an emergency fund: safety, not growth.
Frequently asked questions
What inflation rate should I use?
The Federal Reserve targets 2%; the long-run U.S. historical average is closer to 3%, and the early 2020s spiked far above it. For planning, 2.5–3% is the standard band. For pessimistic stress tests, run 4% and see if your plan survives.
How much does inflation erode over long periods?
The rule of 72 works in reverse: at 3% inflation, prices double — meaning purchasing power halves — roughly every 24 years. A retirement fund that must last from 65 to 95 will watch its dollars lose over half their buying power along the way if left in cash.
Does this calculator use official CPI data?
No — it projects forward at the constant rate you choose, which is the honest way to plan (nobody knows future CPI). For historical “what was $100 in 1990 worth today” lookups, the Bureau of Labor Statistics CPI calculator uses the official record.
How do I protect savings from inflation?
Cash loses by design; the classic defenses are stock index funds (earnings tend to track prices over long horizons), inflation-protected bonds (TIPS and I-Bonds in the U.S.), and real assets. The practical rule: money needed within 3 years stays in high-yield savings and eats the erosion as the price of safety; long-horizon money should out-earn inflation.
Why does 7% return really mean about 4% richer?
Because returns are quoted in nominal dollars whose value shrinks. A 7% portfolio return during 3% inflation grows your purchasing power about 4% — the “real return.” Serious long-term planning (like a FIRE number) should be done in real terms: today’s expenses with a real return.