What inflation rate should I use in this calculator?

For a long-run US planning estimate, 3% is a reasonable middle figure based on the multi-decade CPI average; for a more conservative or aggressive scenario, run the numbers again at 2% and 5% to see the range rather than relying on one point estimate.

How much does 10,000 lose in value over 20 years?

At 3% average inflation, the discount factor over 20 years is about 1.806, so 10,000 today is worth roughly 5,537 in 20 years' purchasing power, a loss of about 45%. At 5% inflation the same 10,000 falls to roughly 3,769, a loss of about 62%.

Is 2% inflation actually 'safe' for my savings?

It still erodes value, just more slowly. At 2% a year, a sum loses about 18% of its purchasing power over 10 years and about 33% over 20 years, so an account paying less than 2% interest is still losing ground even in a low-inflation environment.

Why does the 'amount needed to keep pace' grow faster than the amount today shrinks?

They are the same factor applied in opposite directions, and the factor is always greater than one, so multiplying by it (to find what you would need) moves the number further from the original than dividing by it (to find what today's sum will buy). On 75,000 over 15 years at 2.5%, the buying-power figure falls by about 31% while the amount needed to keep pace rises by about 45%.

Does this calculator account for investment returns?

No, it only measures the effect of inflation on a static sum. If the money earns a return, compare that return against the 'needed to keep pace' figure: a return below it still represents a loss in real terms even though the account balance is growing.

Should I use CPI or PCE for US planning?

CPI-U from the Bureau of Labor Statistics is the more commonly cited figure and the one most cost-of-living adjustments reference, while the PCE index the Federal Reserve targets tends to run somewhat lower over time because it accounts for consumers substituting cheaper goods as prices shift. Either is defensible for personal planning as long as you note which one you used.

Inflation impact calculator

This calculator answers two mirror-image questions about a single sum of money: what will it actually buy after inflation has run for a number of years, and how much larger would it need to be today to buy the same basket of goods at the end of that stretch. Both numbers come from the same compounding formula, just applied in opposite directions, and the gap between them is a useful gut-check on why a savings account paying less than inflation is quietly losing you money even while the balance goes up.

What counts as a 'normal' rate of erosion

Over the long run of US consumer price data, inflation has averaged close to 3% a year, with the Federal Reserve explicitly targeting 2% as its policy goal since 2012. At 2%, a sum of money loses a bit under a fifth of its purchasing power over a decade; at 3% the same decade costs it roughly a quarter of its value; sustained inflation above 6% is unusual outside of a specific shock and erodes savings noticeably faster than most people expect.

A useful reference point: at 3% inflation, prices roughly double every 24 years, so a retirement or college fund built for a horizon that long needs to grow at more than that pace just to tread water, before counting any real return at all.

Three scenarios with the arithmetic worked through

20,000 held for 25 years at 3.5% average inflation: the discount factor is 1.035 to the power 25, which comes to about 2.363. That leaves the 20,000 worth roughly 8,463 in today's terms, a loss of purchasing power of about 58%. To have 20,000 of buying power in 25 years, you would instead need about 47,265 then.

10,000 held for just 10 years at a hotter 7% average — closer to what many economies experienced in 2022 — loses purchasing power faster than most people assume: the factor is 1.07 to the power 10, about 1.967, so the 10,000 shrinks to roughly 5,083 in today's money, a 49% loss in a single decade.

75,000 held for 15 years at a milder 2.5% comes to a factor of about 1.448, leaving the sum worth roughly 51,785 today, a loss of about 31%. This is close to the mildest realistic case and still costs almost a third of the value.

Why the loss accelerates the longer you wait

Inflation compounds the same way interest does, so the damage is not linear. Doubling the number of years does not double the loss; it multiplies the discount factor by itself. Holding 5,000 in cash for 30 years at 5% average inflation, for instance, cuts its buying power to roughly 1,157 — a loss of nearly 77%, far worse than three times the loss you would see over 10 years at the same rate.

This is the mechanical reason cash sitting idle for decades is one of the worst places to store long-term savings, and why the 'needed to keep pace' figure this calculator shows is not a scare number: it is the return a savings vehicle has to clear before it is doing anything more than standing still.

Where a single average rate stops describing reality

The calculator assumes one constant inflation rate compounding evenly every year, but actual inflation moves in bursts: a mild multi-year stretch can be followed by a single sharp year that does most of the damage, and the two paths can average to the same annual figure while feeling completely different in a household budget.

It also assumes you are buying the same fixed basket of goods over the whole period. Real household spending shifts as people age — more spent on healthcare later in life, less on housing once a mortgage is paid off — and the official inflation index is a national average that can run higher or lower than any one person's actual cost of living.

Finally, it says nothing about what the money is invested in. If the sum is sitting in a plain deposit account, the erosion shown here is close to the real outcome; if it is invested and earning a return above inflation, the calculator's 'needed to keep pace' figure is the bar that return has to clear, not a prediction of what will actually happen to the balance.

Which inflation figure to plug in, and jurisdiction differences

US users typically reach for the Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics, or the Fed's preferred Personal Consumption Expenditures (PCE) index, which usually runs a touch lower than CPI. UK users generally use the Consumer Prices Index published by the Office for National Statistics, which has its own basket and historically has diverged from the US figure in both direction and size during the same calendar year.

Whichever index you reference, decide up front whether you are using a single long-run average or a specific recent year's figure, since the two can differ by several percentage points and this calculator has no way to tell them apart. For planning several decades out, a long-run historical average is generally more defensible than extrapolating a single unusually high or low recent year forward.

Frequently asked questions

What inflation rate should I use in this calculator?: For a long-run US planning estimate, 3% is a reasonable middle figure based on the multi-decade CPI average; for a more conservative or aggressive scenario, run the numbers again at 2% and 5% to see the range rather than relying on one point estimate.
How much does 10,000 lose in value over 20 years?: At 3% average inflation, the discount factor over 20 years is about 1.806, so 10,000 today is worth roughly 5,537 in 20 years' purchasing power, a loss of about 45%. At 5% inflation the same 10,000 falls to roughly 3,769, a loss of about 62%.
Is 2% inflation actually 'safe' for my savings?: It still erodes value, just more slowly. At 2% a year, a sum loses about 18% of its purchasing power over 10 years and about 33% over 20 years, so an account paying less than 2% interest is still losing ground even in a low-inflation environment.
Why does the 'amount needed to keep pace' grow faster than the amount today shrinks?: They are the same factor applied in opposite directions, and the factor is always greater than one, so multiplying by it (to find what you would need) moves the number further from the original than dividing by it (to find what today's sum will buy). On 75,000 over 15 years at 2.5%, the buying-power figure falls by about 31% while the amount needed to keep pace rises by about 45%.
Does this calculator account for investment returns?: No, it only measures the effect of inflation on a static sum. If the money earns a return, compare that return against the 'needed to keep pace' figure: a return below it still represents a loss in real terms even though the account balance is growing.
Should I use CPI or PCE for US planning?: CPI-U from the Bureau of Labor Statistics is the more commonly cited figure and the one most cost-of-living adjustments reference, while the PCE index the Federal Reserve targets tends to run somewhat lower over time because it accounts for consumers substituting cheaper goods as prices shift. Either is defensible for personal planning as long as you note which one you used.

Sources

US Bureau of Labor Statistics — Consumer Price Index — Monthly CPI-U data and historical series used as the standard US inflation benchmark (accessed 2025).
Federal Reserve — Longer-Run Goals and Monetary Policy Strategy — Confirms the Federal Reserve's 2% inflation target, adopted 2012 and reaffirmed since.
UK Office for National Statistics — Consumer Price Inflation — Publishes the UK Consumer Prices Index (CPI) used as the standard UK inflation benchmark.