Inflation Adjusted Value
What a sum is really worth after inflation, and what today's spending will cost later.
Enter your numbers
Formula
How the calculation works
Inflation does not reduce the number in your account, it reduces what the number buys. 50,000 left untouched for ten years at 6.5% inflation is still 50,000, but it buys what 26,636 buys today. The calculation divides by the cumulative inflation factor rather than subtracting an annual amount, because each year's inflation applies to the previous year's prices.
That compounding is why the loss is larger than it looks. Subtracting 6.5% a year for ten years suggests a 65% loss, but the real figure is 47%, and the two diverge in the other direction from what people expect. The reason is that the discount applies to a shrinking base each year, so the annual loss in absolute terms gets smaller, not larger.
The same factor read the other way gives the future cost of today's spending. 50,000 of spending today costs 93,857 in ten years at that rate. It is one calculation from two ends, which is why the page shows both: 'my savings are worth less' and 'prices are rising' are the same statement.
Common mistakes
- Subtracting the inflation rate each year instead of compounding it, which overstates the loss.
- Treating the real value as the amount you will have. It is what that amount buys, not a smaller balance.
- Comparing a nominal interest rate against inflation directly. What matters is the rate after inflation, not the headline.
When to use it
- Use it to judge whether a savings rate is actually keeping up, and to size a long-term goal in today's money.
- It assumes one steady inflation rate for the whole period. Real inflation moves, and a period with a spike will come out differently from this smooth projection.
Worked example
50,000 at 6.5% inflation over ten years is worth 26,636 in today's terms.
Common questions
The money has not shrunk, so why is it worth less?
The number is the same, but it buys less. The same sum can be read either way: your money buys less, or today's spending costs more later. Both are one calculation.
Related tools
-
Simple Interest
Interest that is charged on the principal alone and never compounds.
-
Compound Interest
See how fast money grows when the interest earns interest too.
-
Savings Goal
How many months of saving it takes to reach a target.
-
Regular Savings Growth
What regular monthly deposits become after a few years, and how much of it is interest.
-
Investment Return Calculator
Total gain on an investment, and what it works out to per year.
-
CAGR Calculator
The steady yearly rate implied by a starting and an ending value.