Understanding the Inflation Calculator
Inflation is the gradual rise in prices that erodes the purchasing power of money over time. An inflation calculator shows what a sum of money in one year is worth in another — for example, how much you would need today to match the buying power of $100 a decade ago, or what today’s savings might be worth in the future.
Why inflation matters for savers
Money sitting in a low-interest account loses real value every year inflation outpaces the interest it earns. This is the “silent tax” on cash. To preserve purchasing power, your savings generally need to earn at least the inflation rate — which is why long-term money is often invested rather than held entirely in cash.
Planning for future costs
Goals that are years away — college, retirement, a future home — will cost more in nominal dollars than they do today. Factoring inflation into your savings targets prevents you from undersaving. A useful rule of thumb: at a typical inflation rate, prices roughly double every two to three decades.
Tips & things to know
- •Compare your savings rate against inflation to see if your money is really growing.
- •Long-term goals should use inflation-adjusted targets.
- •Historical averages vary, so revisit your assumptions periodically.