What purchasing power means
A dollar amount in today’s budget and the same nominal dollar amount years from now may buy different quantities of goods and services. Inflation is a general rise in prices over time. A household may experience different changes depending on what it buys, so one illustrative rate is not a forecast of anyone’s future expenses.
The Bureau of Labor Statistics offers a CPI Inflation Calculator based on Consumer Price Index data. Historical changes can provide context, but they do not predict an individual household’s future costs.
A hypothetical arithmetic example
At a purely hypothetical 2.5% annual price increase, an item or budget of $5,000 per month today would correspond to about $8,193 per month in nominal dollars 20 years later: $5,000 × (1.025)20 ≈ $8,193. The 2.5% rate is chosen only to demonstrate the arithmetic. It is not a Bureau of Labor Statistics forecast or a prediction for your retirement.
If you are comparing future-dollar income estimates, make sure your goal is expressed on the same basis. Otherwise, the difference can reflect inconsistent units rather than a meaningful income shortfall.
How this calculator treats inflation
The quick estimate asks you to enter amounts in today’s dollars. The optional savings projection uses an editable annual real return, meaning an assumed return after inflation, and assumes monthly contributions remain constant in today’s purchasing power. It does not separately grow your retirement income goal or household expenses by an inflation rate.
As a result, use the same today-dollar basis for your goal, Social Security, pension, other income, savings, and contributions. If you use future nominal dollars from another projection, convert them before comparing or make a separate scenario with consistent assumptions. See the formula and exclusions for details.
Review the assumption, not a prediction
Test more than one plausible assumption when exploring a scenario. The calculator’s 3% default real return is editable and is not a forecast; it does not simulate the changing sequence of investment returns. An after-inflation return also does not tell you how every expense category will change.
For a current picture of personal Social Security estimates, use the SSA’s estimate service. Then compare amounts on the same dollars and tax basis in the calculator.
Related pages
Review the calculator methodology, compare hypothetical worked examples, or return to the free retirement income calculator.