How Much Will Inflation Cost You?

The Model

This calculator shows how inflation erodes purchasing power over time. It takes your current annual spending and projects what the same lifestyle will cost in future dollars at a given inflation rate. It also shows what today’s dollars will be worth in the future, the flip side of the same coin.

Key Calculations

• Future cost: Each year, Future Spending = Current Spending × (1 + Inflation Rate)^Years
• Purchasing power: Each year, Real Value = Today’s Dollars ÷ (1 + Inflation Rate)^Years
• Doubling time: At a constant rate, costs approximately double every 72 ÷ Inflation Rate years (the Rule of 72)
• Extra cost: The difference between future spending and today’s spending shows the annual shortfall if income does not keep pace

Assumptions

• Inflation is constant each year (in reality, it fluctuates significantly)
• Your spending basket stays the same, no changes in lifestyle or consumption patterns
• No adjustments for category-specific inflation (healthcare, education, and housing often inflate faster than the general rate)
• The historical US inflation average is roughly 3% per year since 1926

Interpreting Your Results

• The red area on the chart shows the growing gap between today’s spending and what it will cost in the future
• The gray dashed line represents today’s spending level for reference
• The cents-on-the-dollar figure shows how much purchasing power a dollar loses over the period
• The doubling milestone shows how quickly costs can escalate, even moderate inflation compounds aggressively

Tips for Using This Tool

• Try 2-3% for a normal environment, 4-5% for elevated inflation, and 6-8% for stress testing
• Retirees should pay special attention, fixed income sources that do not adjust for inflation lose real value every year
• Use this alongside the Retirement Calculator to see how rising costs could affect your retirement goals
• Healthcare costs historically inflate at 5-7% per year, well above the general rate, consider running a separate scenario
• Treasury Inflation-Protected Securities (TIPS) and equities are common tools for seeking inflation protection, though neither guarantees it: equities can lag inflation for long periods, and TIPS prices fall when real yields rise