Project your portfolio's future value in real purchasing power.
Inflation at 3.5% means $1.00 today will only buy $0.50 worth of goods in 20 years.
Real Purchasing Power
In today's dollars (Real Value)
Real Yield (CAGR)
6.5%
Loss to Inflation
$334,649
If your growth rate (10%) is less than inflation (3.5%), your wealth is actually shrinking in real terms. To build lasting wealth, your real return must stay positive.
When planning for retirement, "Nominal" returns (the raw percentage growth) are deceptive. What matters is your "Real" return—the growth that remains after accounting for the rising cost of goods and services.
The actual dollar amount you will have in your account in the future. It doesn't account for the fact that a gallon of milk or a house will likely cost much more than they do today.
The "Purchasing Power" of your future dollars. It translates that future nominal amount back into today's terms, allowing you to gauge your standard of living.
While the Federal Reserve targets a 2% long-term inflation rate, historical US inflation has averaged around 3-4% over several decades, with periods of much higher volatility. Planning with a conservative 3.5% inflation rate is often recommended for long-term safety.
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