Inflation Calculator · Practical guide
What Inflation Rate Should You Use for Retirement Planning?
Why 3% is the standard assumption, what it does to a $60,000 budget over 10-30 years, and how to bracket it.
At a glance
The Short Answer
Most retirement plans assume around 3% annual inflation — close to the long-run US average — and stress-test at 2% and 4%. At 3%, prices double roughly every 24 years, so a retirement that starts in three decades needs about twice the income you would need today.
Interactive tool
Inflation Calculator
Enter your own values, then compare the result with the examples below.
Inflation Analysis
What 3% Does to a Retirement Budget
A $60,000 annual budget in today's dollars, compounded forward:
| Years Until Retirement | Budget Needed at 3% | Budget Needed at 2% |
|---|---|---|
| 10 | $80,635 | $73,140 |
| 20 | $108,367 | $89,157 |
| 25 | $125,627 | $98,436 |
| 30 | $145,636 | $108,682 |
Why Not Just Use Last Year's Rate?
Single years mislead: US inflation has swung from negative to double digits within living memory, while multi-decade averages cluster near 3%. A retirement can last 30 years, so what matters is the long-run average, not any one spike. Running 2%, 3%, and 4% brackets the plausible range.
Inflation and Your Investments
Your savings must outpace the same rate. A portfolio returning 7% nominal grows real purchasing power by roughly 3.9% a year under 3% inflation (1.07 / 1.03 = 1.0388). Test how far today's dollars stretch with the calculator above, then size contributions to the inflated target, not today's prices.
Frequently Asked Questions
Should I use CPI or my personal inflation rate?
Start with the ~3% CPI average, then adjust: retirees typically spend more on healthcare, which has historically risen faster than overall CPI.
Does Social Security adjust for inflation?
Yes — benefits receive annual cost-of-living adjustments tied to the CPI-W, which offsets part, but usually not all, of a retiree's inflation exposure.
What real return should I assume for investments?
Many planners use 4-7% nominal and 2-4% real for diversified portfolios. The gap between the two is the inflation rate you assume.
How much income will $1 million generate with inflation?
A common guideline is a 4% first-year withdrawal — $40,000 — increased each year for inflation. Rising prices are exactly why later withdrawals grow.