How Inflation Erodes Your Purchasing Power Over Time
Inflation is the gradual rise in prices that reduces how much your money can buy over time. At the Fed's 2% target rate, prices double in about 36 years. At 3%, they double in 24 years. If you spend $4,000 per month today on the same standard of living, you will need approximately $5,370 in 10 years and $7,220 in 20 years β simply to stay even.
This calculator projects your monthly living costs at 5-year intervals using compound interest math: Future Cost = Current Cost Γ (1 + inflation rate)^years. Use a rate of 2β3% for conservative planning or 3.5β4% if you want to stress-test your retirement projections against higher inflation environments like 2021β2023.
For retirement planning, project expenses to your target retirement age, then divide the annual amount by 4% to estimate the nest egg required under the standard 4% withdrawal rule. The key insight from this calculator is that saving the same nominal dollar amount each year falls further behind as inflation compounds β your investment returns must exceed inflation to build real wealth over time.
Frequently Asked Questions
The US Fed targets 2%. Long-term historical average is 3β4%. Use 2.5β3.5% for balanced retirement projections, or up to 4% for a conservative stress test.
The Rule of 72 says divide 72 by the inflation rate to estimate years to double. At 3%, costs double in ~24 years. At 2%, in ~36 years.