Calculate the impact of inflation on your money over time
Real Value After 20 Years
$5,536.76
in today's dollars
Original Amount
$10,000
Purchasing Power Loss
$4,463.24
To Maintain Purchasing Power
$18,061.11
needed in 20 years
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Understanding inflation is crucial for long-term financial planning.
Historically, stocks have outpaced inflation over long periods.
Property values and rents tend to rise with inflation.
Treasury Inflation-Protected Securities adjust with inflation.
Gold and other commodities can hedge against inflation.
The Federal Reserve targets 2% annual inflation as healthy for the economy. Historically, US inflation has averaged around 3% over the long term. Rates above 5% are considered high, while deflation (negative inflation) can signal economic problems.
Inflation erodes purchasing power. If you have $10,000 in a savings account earning 1% interest but inflation is 3%, you're losing 2% in real purchasing power annually. Your money needs to grow faster than inflation to maintain its value.
Stocks historically outpace inflation over long periods (averaging 10% annually). Real estate, commodities, and Treasury Inflation-Protected Securities (TIPS) also hedge against inflation. Avoid keeping large amounts in cash or low-interest savings during high inflation.
Inflation occurs when demand exceeds supply, production costs rise, or the money supply increases. Common causes include economic growth, government spending, supply chain disruptions, and central bank monetary policy.
Assume 3% annual inflation when calculating retirement needs. A $50,000 annual budget today will need to be $90,000 in 20 years at 3% inflation. Invest in assets that outpace inflation and consider delaying Social Security for inflation-adjusted increases.