See how inflation silently erodes your money's purchasing power — year by year.
How much is $100,000 today worth in 20 years? Answer: less than you think.
Inflation is the rate at which prices rise over time. When prices go up, each dollar you hold buys less. A 3% annual inflation rate might sound modest, but over 20 years it cuts your purchasing power roughly in half. Over 30 years, you lose nearly two-thirds of it.
This isn't a theoretical risk. It's the default outcome for any cash sitting idle — in a savings account earning 0.5% while inflation runs at 3%, you're losing 2.5% of real purchasing power every year.
The first formula answers: "What will my $X be worth in N years?" The second answers: "How much money will I need in N years to match today's $X in purchasing power?"
A quick mental shortcut: divide 70 by the inflation rate to estimate how many years it takes for your purchasing power to halve. At 3% inflation, your money loses half its real value in roughly 23 years (70 ÷ 3 = 23.3). At 7%, it takes just 10 years.
Historically, broad stock market indices (like the S&P 500) have returned roughly 7% annually after inflation. Real estate has historically kept pace. Long-term Treasury bonds and I-Bonds are explicitly inflation-linked. Cash and basic savings accounts generally lose to inflation over long periods.
The point isn't to fear inflation — it's to understand that money sitting still is money slowly evaporating. Putting capital to work in assets that grow faster than inflation is how wealth is preserved across decades.
The Federal Reserve targets 2% inflation. The US long-run average since 1913 is approximately 3.2%. The 1970s saw peaks above 13%. Post-pandemic 2021–2023 inflation peaked around 9%. For long-term planning, 2.5–3.5% is a reasonable base assumption.