Inflation Calculator
Calculate the impact of inflation on purchasing power, future value of money, and year-by-year inflation effects
Purchasing Power Lost
Future Nominal Value
What This Means
Today: $100,000 can purchase a certain amount of goods and services.
In 20 years: Due to 3% annual inflation, you would need $180,611 to purchase the same goods and services.
Alternatively: If you kept $100,000 in cash (earning 0% interest), it would only have the purchasing power of $55,368 in today's dollars - a loss of $44,632 (44.6%) in purchasing power.
Year-by-Year Inflation Impact
| Year | Amount Needed | Real Value of $100,000 | Purchasing Power Lost | % Lost |
|---|---|---|---|---|
| 1 | $103,000 | $97,087 | -$2,913 | 2.9% |
| 2 | $106,090 | $94,260 | -$5,740 | 5.7% |
| 3 | $109,273 | $91,514 | -$8,486 | 8.5% |
| 4 | $112,551 | $88,849 | -$11,151 | 11.2% |
| 5 | $115,927 | $86,261 | -$13,739 | 13.7% |
| 6 | $119,405 | $83,748 | -$16,252 | 16.3% |
| 7 | $122,987 | $81,309 | -$18,691 | 18.7% |
| 8 | $126,677 | $78,941 | -$21,059 | 21.1% |
| 9 | $130,477 | $76,642 | -$23,358 | 23.4% |
| 10 | $134,392 | $74,409 | -$25,591 | 25.6% |
| 11 | $138,423 | $72,242 | -$27,758 | 27.8% |
| 12 | $142,576 | $70,138 | -$29,862 | 29.9% |
| 13 | $146,853 | $68,095 | -$31,905 | 31.9% |
| 14 | $151,259 | $66,112 | -$33,888 | 33.9% |
| 15 | $155,797 | $64,186 | -$35,814 | 35.8% |
| 16 | $160,471 | $62,317 | -$37,683 | 37.7% |
| 17 | $165,285 | $60,502 | -$39,498 | 39.5% |
| 18 | $170,243 | $58,739 | -$41,261 | 41.3% |
| 19 | $175,351 | $57,029 | -$42,971 | 43.0% |
| 20 | $180,611 | $55,368 | -$44,632 | 44.6% |
About This Tool
An inflation calculator helps you understand how inflation erodes the purchasing power of money over time. Inflation means that the same amount of money buys less in the future than it does today. Understanding inflation's impact is crucial for long-term financial planning, retirement savings, and making informed investment decisions.
What Is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises, causing purchasing power to fall. For example, if inflation is 3% annually, something that costs $100 today will cost $103 next year. Over 20 years at 3% inflation, that $100 item would cost about $181. The Federal Reserve targets 2% annual inflation as healthy for the economy, though actual rates fluctuate. High inflation (5%+ ) erodes wealth quickly, while deflation (negative inflation) can signal economic problems.
Historical Inflation Rates
U.S. inflation has averaged about 3% annually over the past century, though it varies significantly by period. The 1970s saw high inflation (often 7-14%), while the 2010s experienced very low inflation (often below 2%). Recent years (2021-2023) saw elevated inflation of 5-9% due to pandemic-related supply chain issues and economic policies. For long-term planning, using 2.5-3% is reasonable, though you might use higher rates (3-4%) to be conservative. Remember that some expenses like healthcare and education typically inflate faster than the overall rate.
Why Inflation Matters for Investing
Your investments must outpace inflation to actually grow your wealth. If your savings account earns 1% interest but inflation is 3%, you're losing 2% in purchasing power annually - your balance grows nominally, but you can buy less with it. This is why keeping all your money in low-interest savings accounts long-term is risky. Stocks have historically returned 10% annually (7% after inflation), bonds 5-6% (2-3% after inflation). For retirement planning, you need to consider "real returns" (returns minus inflation) to know if you're truly building wealth.
Protecting Against Inflation
To protect your wealth from inflation: invest in stocks or stock funds (historically outpace inflation over long periods), consider Treasury Inflation-Protected Securities (TIPS) that adjust with inflation, own real estate (property values and rents typically rise with inflation), and avoid keeping too much cash (it loses value fastest). For retirement planning, assume you'll need more income each year to maintain the same lifestyle. If you need $50,000 annually at retirement, you might need $90,000 in 20 years assuming 3% inflation. Always factor inflation into long-term financial goals.