About the Inflation Calculator
Inflation is the silent tax that shrinks the purchasing power of every dollar you hold or save. At 3%/yr — close to the US long-run average — prices double roughly every 24 years: the CPI long-run average of 3% is where “mobs but yours” lives.
This tool projects the future cost of a given amount of goods and services at any inflation rate, so a target can be set in *tomorrow’s* dollars (what a down payment, retirement income, tuition, etc., will actually require).
The formula behind it
Standard compounding growth of prices:
Future cost = amount × (1+inflation)^years • Purchasing power = amount / (1+inflation)^yearsThe first calculation answers “what will this cost”; the second, “what will today’s amount buy.” Long-run US CPI averages roughly 3% annually; change the rate if your horizon includes particular decades with unusual inflation.
Worked example
Defaults — $50,000 of goods/services today, 3% inflation, 20 years:
- (1.03)^20 ≈ 1.806
- The same purchases cost ≈ $90,300.
- Today’s $50,000, left alone, buys only ≈ $27,700 worth of that basket.
Takeaway: Without a return the money earns at least 3%/yr, holding cash guarantees about a 45% real loss over 20 years. Even “low risk” should mean “running-fast.”
What moves the result
- Inflation rate — a 1% higher average rate compounds enormously: at 4%, the same 20-year feature costs $110k instead of $90k.
- Time horizon — the longest horizons magnify compounding the most; 30-year plans need price assumptions built in.
- CPI measurement — “official” inflation is average; your personal basket may run higher (housing, healthcare, education all run up often).
- Tax treatment — interest earned on savings is taxed before inflation is subtracted; only real (after-inflation, after-tax) return is what actually mattered.
Practical tips
- Price retirement targets in future dollars, not current ones — nobody spends years of 1990s prices at 65.
- Include inflation in every nest-egg plan using the retirement calculator; a rotated plan at today’s dollars is quietly underfunded.
- For long-term money, TIPS or I-bonds dominate nominal fixed-rate products in high-inflation regimes.
- Compare growth investments to inflation, not zero — doubling your money at 8% is a real ~2× every 24 years in dollar terms after inflation.
- When anticipating wage negotiations, run the same math: a raise below inflation is a real-cut.
Frequently asked questions
Which inflation rate should I use?
The long-run US CPI average is ~3%. For recent planning years, use actual figures; for the 30-year forward horizon, be prudent and assume 2.5–4%.
Does the tool use CPI data automatically?
No — this is a forward-looking projection tool. For actual historical to-date recalcs, the BLS CPI inflation calculator gives exact CPI-conversion amounts.
What does “real vs nominal” mean here?
Nominal: the actual dollar number. Real: what those dollars can purchase. Financial calculations that only use nominal values may misrepresent how far ahead you actually are.