Inflation

Inflation quietly reprices every retirement dollar

A balance that looks adequate today can lose a large share of its buying power across a 25 or 30 year retirement. Planning retirement income means planning for prices that keep moving.

Inflation is the sustained rise in the general price level. It never appears as a line item on a brokerage statement, which is why it is so easy to underestimate. A dollar set aside today buys less at the grocery store, at the pharmacy, and at the utility company in ten years, and considerably less in thirty.

Assumed annual inflation
3.0%
Years for purchasing power to halve
24

Half of a portfolio's real value can disappear without a single negative return, which is why the framework separates nominal results from inflation-adjusted returns.

Keep reading: purchasing power over time and the four-pillar framework.

Paper grocery receipt, loose coins, and a calculator on a wooden table
Small, steady price increases compound into a measurable change in what a fixed income can buy.

Purchasing Power Calculator

See what inflation does to money you set aside today

Enter a balance, an assumed inflation rate and a time horizon. The calculator estimates how much buying power that balance keeps, expressed in today's dollars. A moderate rate applied over decades does most of the work.

Buying power left in 25 years $47,761
Purchasing power lost 52.2%
Same basket, future dollars $209,378

Estimates assume a constant rate and no withdrawals. For how inflation interacts with portfolio returns, read inflation-adjusted returns.

Inflation

Inflation-Adjusted Returns

A nominal return is the headline figure on an account statement. A real return is what is left once inflation is subtracted. Across 20 to 30 years, the gap between the two can erase more than half of the ending balance.

Subtracting inflation from a nominal return gives a workable estimate of real return. The precise relationship divides rather than subtracts, but for planning the simple difference is close enough to show scale and direction.

Real returns are the figure to compare against the future cost of living. A plan built on nominal growth alone can look fully funded on paper and still fall short of the income it was meant to replace.

See the sources behind these figures.

$500 contributed monthly for 25 years at a 7.0% nominal annual return, shown under four inflation scenarios.
Inflation Nominal return Real return Ending balance in today's dollars
2.0%7.0%4.9%$247,000
3.0%7.0%3.9%$193,000
4.0%7.0%2.9%$152,000
5.0%7.0%1.9%$120,000

Illustration only. Annual returns vary and can be negative, and inflation is not constant.

Evidence

Source Cards

Every figure on this page traces back to a published agency series. Each card lists the issuing agency, the dataset, and a direct link, so you can check the underlying numbers yourself before drawing conclusions about inflation and purchasing power.

Methodology note: figures are quoted from published agency data and rounded for readability. Reductions in purchasing power will vary by household spending mix. For how these inputs feed into planning, see inflation-adjusted returns. Educational material only, not investment advice.