Inflation Calculator

2% to 3% is the standard planning range. The Federal Reserve targets 2% over the long run, and 3% gives a slightly conservative projection.

For a plan spanning decades, run a higher rate as well. Inflation has spent long stretches well above target, and a retirement plan is exactly the kind of thing that suffers if it does.

Nominal is the raw percentage. Real is what is left after inflation, and it is the one that tells you whether you can buy more than before.

A 7% nominal return with 3% inflation is a 3.88% real return. Subtracting the two gives 4%, which is close enough for mental arithmetic and slightly optimistic.

In the US, mainly by the Consumer Price Index, which the Bureau of Labor Statistics compiles from prices across a basket of goods and services that households typically buy.

Different measures exist and can disagree. CPI-U covers urban consumers; the Fed pays more attention to the PCE price index, which usually runs slightly lower.

Because the index is an average across a fixed basket, and your spending is not that basket. If a large share of your budget is rent, childcare or health insurance, and those rise faster than average, your experience is genuinely worse than the headline.

The reverse also happens. Someone who owns their home outright on a fixed mortgage feels housing inflation much less than a renter does.

In one specific way, yes. A fixed-rate loan is repaid in dollars that are worth less than the ones you borrowed, so inflation quietly erodes the real value of the debt.

It only works with fixed rates and rising income. Variable-rate debt usually gets more expensive as rates rise to fight inflation, so the effect can reverse entirely.

Take the annual income you want in today's money and compound it forward at your inflation rate to the year you retire.

$50,000 a year today is $67,196 in ten years and $90,306 in twenty, both at 3%. Building a plan around the un-adjusted figure is the most common way a retirement number ends up far too low.