How inflation eats your money
Inflation is the gradual rise in prices over time. As prices go up, each dollar buys a little less. The math is simple compounding in reverse:
Future purchasing power = Amount ÷ (1 + inflation)years
At 3% inflation, money loses roughly half its purchasing power in about 23 years. That's why cash sitting in a no-interest account quietly shrinks in real terms, even though the number on your statement never drops.
How to protect yourself from inflation
- Don't hold too much idle cash. Keep an emergency fund, but invest the rest so it can outpace inflation.
- Invest for real growth. Stocks and other assets have historically grown faster than inflation over the long run.
- Use a high-yield savings account for short-term money so it at least earns something.
Stay ahead of inflation
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Low-cost index funds are a common way to aim for returns above inflation.
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See top rates →Frequently asked questions
What inflation rate should I use?
Long-term averages are often around 2–3%, but inflation varies year to year. Use a higher rate to stress-test your plan.
Why does this matter for retirement?
A "comfortable" income today will buy much less in 30 years. When planning retirement, use inflation-adjusted (real) returns so your projections stay realistic.
Related tools
See how investing can beat inflation with the compound interest calculator, or plan ahead with the retirement calculator.