Inflation Calculator

Inflation is the gradual increase in prices over time, which means each dollar you hold buys less in the future. The Federal Reserve targets a 2% annual inflation rate as a sign of a healthy economy, but even this modest rate compounds significantly over time.

At a 3% annual inflation rate — close to the US historical average — prices double roughly every 24 years. That means something that costs $100 today would cost about $200 in 2050. Your $10,000 in savings would only have the buying power of about $5,537 after 20 years at 3% inflation, even though the number in your bank account stays the same.

This is why keeping large amounts of cash in a non-interest-bearing account is often called "losing money slowly." While the nominal value stays constant, the real value — what you can actually buy — steadily declines.

• Future Purchasing Power:This shows what your current amount will actually be worth in the future, adjusted for inflation. If you have $10,000 today and inflation averages 3% for 20 years, your money will only buy about $5,537 worth of today's goods and services.
• Purchasing Power Lost: The dollar amount of buying power that inflation erodes from your money. This is the difference between your current amount and its future purchasing power.
• Cost of Same Goods in Future: If you can buy a basket of goods for $10,000 today, this figure shows how much that same basket will cost in the future. At 3% inflation over 20 years, you would need roughly $18,061 to buy what $10,000 buys today.
• Total Value Lost (%): The percentage of purchasing power that inflation strips away. This helps you understand the proportional impact regardless of the dollar amount.

Understanding inflation is critical for evaluating investment returns. There is an important distinction between nominal returns (the raw percentage your investment grows) and real returns (your growth after subtracting inflation).

For example, if your portfolio earns 7% annually and inflation is 3%, your real return is only about 4%. A savings account paying 1% interest with 3% inflation actually loses you 2% in purchasing power each year. Even a "safe" investment can be a losing proposition if it does not outpace inflation.

Historically, equities (stocks) have been one of the best hedges against inflation, with average annual returns of 10% before inflation. Bonds, real estate, and Treasury Inflation-Protected Securities (TIPS) are other tools investors use to preserve purchasing power.

Inflation is one of the biggest risks to retirement security. If you plan to retire in 20 years and need $60,000 per year in today's dollars, you will actually need approximately $108,367 per year at 3% inflation to maintain the same lifestyle.

Over a 30-year retirement, this effect compounds further. A retiree who needs $60,000 in year one of retirement would need over $145,000 by year 30 just to keep up with 3% inflation. This is why financial planners recommend building in an inflation buffer and maintaining some growth-oriented investments even in retirement.

Social Security benefits include cost-of-living adjustments (COLAs), but these do not always keep pace with actual inflation. Pensions with fixed payouts lose value every year unless they include inflation adjustments. Use this calculator to stress-test your retirement plan against different inflation scenarios.