Question 1

How does inflation affect the value of money?

Accepted Answer

Inflation raises prices over time, so the same dollar buys less in the future. If prices rise 3% a year, something that costs $100 today costs about $103 next year and roughly $181 in twenty years. Put another way, $100 twenty years from now would only buy what about $55 buys today. This calculator shows both views — the future cost of an amount, and its buying power in today's dollars.

Question 2

What inflation rate should I use?

Accepted Answer

The long-run average U.S. inflation rate has been roughly 2–3% per year, and the Federal Reserve targets about 2%. Individual years can be much higher or lower, and your personal inflation rate depends on what you buy. Try a few rates to see how sensitive the result is over your time horizon.

Inflation Calculator