Inflation Calculator

Enter your details

Amount Today ($)

Years 20 years

Annual Inflation Rate 3%

Your results

Tips

💸The US Federal Reserve targets 2% inflation per year — the long-run average has been closer to 3%.
📈Keeping money in a savings account below the inflation rate means you're losing purchasing power.
🛡️Inflation-protected investments (TIPS, I-bonds, real estate) hedge against purchasing power loss.

What inflation actually does to your money — and why it matters more than most people realize

Inflation is the gradual increase in the general price level of goods and services over time — which is the same as saying the purchasing power of money gradually decreases. At 3% annual inflation, $100 today buys what $97 bought last year, $74 bought ten years ago, and $55 bought twenty years ago. The dollar bill is the same; what it can purchase has changed dramatically.

For savers and investors, inflation sets the hurdle rate: the return your money must earn just to maintain its value. Money in a traditional savings account earning 0.5% during 3% inflation is actually losing purchasing power at 2.5% per year — slowly, invisibly, but relentlessly. This is why keeping large amounts of cash uninvested for long periods is a guaranteed way to lose real wealth.

Historical US inflation rates and what they mean

The Federal Reserve targets 2% annual inflation as a healthy baseline for a growing economy. Historical average inflation since 1913 has been approximately 3.2%. The 2021–2023 inflationary period saw rates spike to 7–9% — the highest since the early 1980s — before declining back toward the Fed's 2% target.

📊
At 2% inflation (Fed target)
$100,000 today has the purchasing power of about $82,000 in 10 years and $67,000 in 20 years. Modest, but meaningful over long periods.
📈
At 3% inflation (historical average)
$100,000 today has the purchasing power of about $74,000 in 10 years and $55,000 in 20 years. This is why a 3% nominal investment return is essentially breaking even in real terms.
🔥
At 6% inflation (as seen in 2022)
$100,000 would lose nearly half its purchasing power in just 12 years. This is why high-inflation periods are especially damaging to fixed-income savers and retirees on fixed incomes.
💰
For retirement planning
If you retire with $1.5 million and withdraw $60,000/year, inflation means your $60,000 needs to grow each year to maintain the same living standard. At 3% inflation, you will need $80,000/year by year 10 just to stay even — which is why the 4% rule adjusts withdrawals for inflation annually.

What beats inflation — and what does not

Assets that historically outpace inflation: stocks (equities), real estate, TIPS (Treasury Inflation-Protected Securities), I-bonds, and commodities. Assets that tend to lose to inflation: cash savings accounts below the inflation rate, fixed-rate bonds during inflationary periods, and fixed income streams not adjusted for cost of living.

For long-term investors, the most powerful inflation hedge is a diversified equity portfolio. Over any 20–30 year period in US history, a broadly diversified stock portfolio has significantly outpaced inflation. The risk is that stocks are volatile in the short term — which is why cash and bonds still have a role for near-term needs and risk reduction, even though they may lose to inflation in real terms.

Example: The real return on a 7% investment with 3% inflation

A 7% nominal return during 3% inflation produces approximately 3.88% in real (purchasing-power-adjusted) return. On $100,000 over 20 years: the nominal balance is $387,000, but in today's dollars it is worth about $215,000. Both numbers are accurate — one is the account balance, one is what it can actually buy.

Frequently asked questions

Inflation has multiple drivers: demand-pull (too much money chasing too few goods), cost-push (rising production costs — energy, labor — that businesses pass on to consumers), monetary expansion (central banks creating money faster than economic output grows), and supply chain disruptions. The 2021–2023 inflation was driven by a combination of pandemic-era supply chain shocks and significant fiscal stimulus.

The Fed's primary inflation-fighting tool is interest rate increases. Higher rates make borrowing more expensive, which reduces consumer and business spending, cooling demand and eventually reducing price pressure. Rate increases also strengthen the dollar, which reduces the cost of imports. The tradeoff is that higher rates also slow economic growth and can trigger recessions.

Inflation is one of the largest risks in retirement. A retiree living on a fixed income (pension or bond interest) sees their real purchasing power erode each year. A portfolio that grows through market returns has a built-in inflation hedge. This is why most retirement planners recommend maintaining significant equity exposure even in retirement, despite the volatility.

Treasury Inflation-Protected Securities (TIPS) are US government bonds whose principal value adjusts with the Consumer Price Index (CPI). I-bonds are also US government savings bonds with a return tied to inflation plus a fixed rate. Both provide guaranteed inflation protection — but with lower potential returns than equities, making them better for capital preservation than growth.

Inflation actually benefits debtors with fixed-rate debt. If you have a $300,000 mortgage at 3.5% and inflation runs at 6%, the real burden of that debt is shrinking — you are repaying it with dollars that are worth less than the dollars you borrowed. This is why inflation was historically painful for lenders and savers but beneficial for borrowers with fixed-rate debt.