The quiet drag on purchasing power
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. If a 0.5% account rate and 3% inflation both persisted for a year, the cash would lose roughly 2.5% of purchasing power before tax. High-yield savings that roughly match inflation can narrow that loss — which is the job of an emergency fund: safety, not growth.
Method, example, and sources
How this calculator works
The model compounds the selected annual inflation rate for the chosen number of years. It divides today’s amount by that price factor to estimate future purchasing power and multiplies by the same factor to estimate the future dollars needed to match today’s amount.
Worked example
At a constant 3% annual inflation rate for 20 years, the model estimates that $1,000 would have about $553.68 of today’s purchasing power. Matching what $1,000 buys today would require about $1,806 then, a modeled purchasing-power loss of roughly 45%.
What the estimate leaves out
- The entered rate stays constant; actual inflation varies over time and this is not a CPI forecast.
- A national price index may not match one household’s spending mix, location, or personal inflation experience.
- Taxes, investment returns, wage growth, and product-specific price changes are not modeled.
Primary sources
Frequently asked questions
What inflation rate should I use?
Future inflation is unknowable, so compare a range rather than relying on one forecast. For example, run 2%, 3%, and 4% scenarios and note which decisions change. The calculator does not claim that any of those rates will occur.
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 a constant rate selected by the user and does not forecast future CPI. For historical “what was $100 in 1990 worth today” comparisons, the Bureau of Labor Statistics CPI calculator uses published CPI data.
How do I protect savings from inflation?
There is no risk-free universal hedge. Cash and deposits emphasize liquidity but may lose purchasing power; inflation-linked bonds, other bonds, stocks, and real assets carry different market, credit, tax, and liquidity risks. Compare those tradeoffs against your deadline instead of selecting an asset from the projected inflation number alone.
Why does 7% return really mean about 4% richer?
Because nominal growth and inflation use the same unit of account. A 7% nominal return with 3% inflation corresponds to about 3.88% real growth: 1.07 ÷ 1.03 − 1. Long-term scenarios can use today’s expenses with a real-return assumption to keep purchasing-power units consistent.