Inflation is the steady rise in prices. At 3% annual inflation, what costs $100 today costs about $181 in 20 years, and $100 will buy only about $55 worth of today's goods.
Real vs nominal returns
A savings account paying 2% during 3% inflation has a real return of about −1%. Real return, the return after inflation, is what determines whether your purchasing power grows.
Assets that have kept pace
Historically, diversified stocks have outpaced inflation over long periods. Treasury Inflation-Protected Securities and I bonds adjust with inflation. Real estate often rises with prices and rents. Cash and fixed-rate bonds are most vulnerable.
Practical steps
Keep emergency savings in high-yield accounts but avoid holding excess cash for decades. Invest long-term money in diversified assets, keep fixed expenses in check and aim for raises that exceed inflation. Plan retirement withdrawals in inflation-adjusted terms.
Try the numbers
Use our Inflation Calculator to see this in practice. With its default example (Amount today: $100,000; Annual inflation: 3%; Years: 20), it shows cost in the future for the same goods: $180,611. Adjust the inputs to match your situation.
Key takeaways
- Inflation quietly reduces what your money can buy.
- Real return = nominal return minus inflation.
- Diversified investments help preserve purchasing power.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.