Investment & Inflation Details
Real Value of Your Investment
| Year | Nominal Balance ($) | Real Value ($) | Purchasing Power Lost ($) |
|---|
How It Works
Nominal balance = principal compounded + future value of monthly contributions (same math as a standard compound interest calculator).
Real value in today's dollars = Nominal balance ÷ (1 + inflation)years. This is what your money will actually buy, expressed in today's prices.
Purchasing power lost = Nominal balance − Real value — the silent cost of inflation.
Real rate of return (Fisher equation) = (1 + nominal rate) ÷ (1 + inflation) − 1. An 8% return with 3% inflation is about 4.85% real.
Watch out: if your nominal return is below the inflation rate, your balance grows but your purchasing power shrinks. This calculator makes that invisible loss visible.
Frequently Asked Questions
How does inflation affect compound interest?
Inflation erodes the purchasing power of future money. To find the real value, divide the nominal balance by (1 + inflation rate) raised to the number of years. The result shows what your balance is worth in today's dollars.
What is the real rate of return?
It adjusts nominal return for inflation using the Fisher equation: (1 + nominal) ÷ (1 + inflation) − 1. An 8% nominal return with 3% inflation is roughly 4.85% real — not the 5% from simple subtraction.
What inflation rate should I use for planning?
The U.S. long-run average CPI inflation is around 3% per year; the Federal Reserve targets 2%. Many planners use 2.5–3%. Try several rates to see a range of outcomes.
Can I lose money in real terms while my balance grows?
Yes. If your nominal return is lower than inflation, purchasing power shrinks even as the account balance rises — common with low-yield savings during high-inflation periods.