Inflation Impact Calculator
Purchasing power in retirement — what $1M is really worth in 20-30 years.
Real purchasing power in 25 years
$477,606
At 3% inflation, your dollar buys 48% as much in 25 years. Stocks (~7% real return) are the main hedge for retirees with long horizons.
Inflation quietly shrinks what your money can buy. A dollar today will purchase less in 20 or 30 years, which means the nest egg that looks large now may cover far less than you expect by the time you retire.
This calculator shows the future purchasing power of a sum of money given an assumed inflation rate and time horizon. It answers questions like what $1,000,000 will really be worth decades from now, in today's dollars.
Understanding this erosion is essential for retirement planning. The goal is not just to grow your savings, but to grow them faster than inflation so your real, spendable wealth actually increases.
How this calculator works
Future purchasing power is calculated by discounting for inflation: value in today's dollars = future amount / (1 + inflation rate)^years. For example, at 3% annual inflation, $1,000,000 in 20 years has the buying power of about $1,000,000 / 1.03^20, or roughly $554,000 in today's dollars. Over 30 years at the same rate, it falls to about $412,000. To judge whether savings are truly growing, subtract inflation from your return: a 7% nominal return during 3% inflation is only about a 4% real return, and that real figure is what actually improves your standard of living.
What affects the number
- Inflation rate: even a modest rate compounds; the long-run U.S. average has been around 3% per year, though individual years vary widely.
- Time horizon: the longer the period, the greater the erosion, because inflation compounds just like investment returns.
- Nominal vs. real return: real return is roughly your nominal return minus inflation, and only the real portion increases your buying power.
- Category differences: healthcare and housing costs in retirement often rise faster than the overall inflation rate.
- Fixed income risk: pensions or annuities without cost-of-living adjustments lose value every year to inflation.
- Cash drag: money held in low-yield accounts can lose purchasing power over time if the yield trails inflation.
Frequently asked questions
What will $1 million be worth in 20 years?
At 3% annual inflation, $1,000,000 will have the purchasing power of about $554,000 in today's dollars after 20 years. At a higher 4% rate, it drops to roughly $456,000. The money still says one million on paper, but it buys far less, which is why inflation matters so much in retirement planning.
How do I calculate the future purchasing power of money?
Divide the future amount by (1 + inflation rate) raised to the number of years. For example, $500,000 in 25 years at 3% inflation is $500,000 / 1.03^25, or about $239,000 in today's dollars. This tells you what a future sum would buy if you could spend it at today's prices.
What is the difference between nominal and real return?
Nominal return is the raw percentage your investment earns; real return is what is left after subtracting inflation. If your portfolio returns 7% and inflation is 3%, your real return is about 4%. Only the real return increases your actual buying power, so it is the number that matters for maintaining your standard of living.
How much does inflation affect retirement savings?
Over a multi-decade retirement, inflation can cut purchasing power roughly in half. At 3% inflation, prices double in about 24 years, so a fixed income buys half as much by then. This is why retirement plans aim for returns that outpace inflation and why cost-of-living adjustments on income sources are so valuable.
What inflation rate should I use for planning?
Many planners use around 3% as a long-run assumption, roughly the historical U.S. average, though actual inflation varies from year to year and has been both much lower and much higher. It is wise to test a range, such as 2% to 4%, to see how sensitive your plan is. Remember that some retirement costs, especially healthcare, tend to rise faster than the overall rate.
This calculator provides general estimates for educational purposes only and is not financial, tax, or investment advice. Your actual results depend on your specific situation, tax rules, market returns, and the current year's IRS limits.