Inflation Calculator for Retirement Planning

Planning for retirement involves estimating your future financial needs. One critical factor to consider is inflation, because it affects your purchasing power over time. Inflation is the rate at which prices increase over time (specified as an annual rate). Because prices generally increase, your salary needs to increase each year to keep up with inflation. During retirement, you would need to withdraw more from your nest egg each new year to keep up the same lifestyle.

One of the main things to consider in retirement planning is estimating how much you will need to spend each year during retirement. Let's say that you are currently living on $50000 per year. If you plan to retire in 20 years, what will be the cost of a similar lifestyle during your first year of retirement, assuming 3% inflation between now and then?

Using the calculator below, enter PV = 50000, n = 20, r = 3% (leaving FV blank). The result is $90,305.56, meaning that a yearly spending of $50K in today's dollars will be about $90,306 in 20 years (assuming 3% inflation).

You can play with the simple online Inflation Calculator below to answer other inflation-related questions. For more advanced retirement planning calculations, you can use some of our spreadsheets that include inflation within the estimates. These include the Retirement Calculator, Annuity Calculator and Retirement Withdrawal Calculator.

Online Inflation Calculator

Example (Future Cost based on Current Cost): If I am spending $30k per year now, what will the cost of that lifestyle be in 20 years, assuming 2% inflation? Inputs: PV = 30000, n = 20, r = 2%. Answer: The cost is estimated to be $44578.42 in 20 years.

Also available as a ...

• Excel Spreadsheet
• OpenOffice Spreadsheet

Historical Inflation Rates

Understanding historical inflation rates can provide insight into future estimates. Here are some average rates over different periods:

• 1969 to 2009 (40 years): 4.51%
• 1979 to 2009 (30 years): 3.68%
• 1989 to 2009 (20 years): 2.78%
• 1999 to 2009 (10 years): 2.56%

The online inflation calculator at U.S. Bureau of Labor Statistics (BLS) is based on the historical values for the Consumer Price Index (CPI) instead of assumed rates. For example, $50,000 in January of 2024 has the same buying power as $7,554.71 in January of 1974 (50 years ago).

What is the annualized inflation rate for that scenario? Using the calculator above, enter PV = 7554.71, FV = 50000, n = 50. The answer is an annualized 3.852% between January 1974 and January 2024.

Does this mean that to estimate 50 years in the future we should use 3.852%? Not necessarily, because as the typical investment broker will say in their disclaimers: "past performance is no guarantee of future results." However, an estimate based on historical data is generally better than picking a value by staring at your belly button 🙂.

Tip: To be conservative in your retirement planning estimates, you should assume a higher estimate for inflation. If you assume inflation will be 1%, but the actual annualized inflation ends up being 4%, then your saving plan may not be sufficient to cover your future costs.

How the Inflation Calculator Works

The above Inflation Calculator uses formulas similar to the PV (present value), FV (future value), RATE, and NPER (number of periods) functions in Excel.

Let's make a rough estimation that inflation is 3% per year. Here are two scenarios to show how you would apply the PV and FV formulas using Excel. You can verify these values using the online inflation calculator above.

Calculating Present Value: First, let's say that I was using the Annuity Calculator to help me figure out how long my retirement nest egg may last, and I had originally planned on an initial payout of $50,000 per year. I'm not planning to retire for 20 years. So, based on today's prices, what is that future value of $50,000 worth today?

=PV(3%,20,0,-50000)
=$27,683.79

Using the inflation calculator, you can enter: n = 20, r = 3% and FV = 50000 (leaving PV blank).

Wow! That is a lot less than $50,000. I currently spend more than $27,684 per year, which means that 20 years from now, $50,000 won't be enough. If I don't adjust my savings plan, I will have to delay retirement or will run out of money sooner than I'd like, so let's figure out what I need to plan for.

Calculate Future Value: Let's say I can comfortably live on $30000 per year based on current spending. I'm not including the home mortgage because I'll assume that I won't have a mortgage in 20 years (but I will still have insurance, property taxes, utilities, etc). We'll just keep things simplified for now. To maintain spending similar to $30000 this year, how much will I be spending after 20 years, assuming a more conservative 4% inflation?

=FV(3%,20,0,-30000)
=$54,183.34

Using the inflation calculator, you can enter: n = 20, r = 3% and PV = 30000 (leaving FV blank).

So, when I retire, I need to plan on needing $54000 my first year of retirement if I want to maintain the same lifestyle that $30000 affords me today. Inflation will cause that need to increase each year after I retire, but the Annuity Calculator does take that into account.