What Inflation Actually Does to a Number

Two questions, and they're reciprocals

These sound like the same question and are not:

• What will I need in 25 years to match $100 today?
• What will $100 buy in 25 years?

One multiplies by inflation. The other divides by it.

At 3% over 25 years:

What you'd need	$209.38
What $100 will buy	$47.76
Purchasing power lost	52.2%

Same erosion, opposite ends. People conflate them constantly — usually by taking the smaller number as the answer to the first question, which badly understates what a future goal costs.

The gradualness is the difficulty

Over one year, 3% on $100 costs under $3. That's exactly why it's ignorable.

Compounded over 25 years it multiplies prices by 2.09.

No single year is ever alarming enough to act on. That's the whole problem.

The rule of 70

Divide 70 by the rate and you get roughly how many years until prices double — or equivalently, until purchasing power halves. Those are the same event from two ends.

Rate	Halving time
3%	23.3 years
7%	10 years

At 3% that's comfortably inside a working life.

It's an approximation — the exact figure at 3% is 23.45 years against the rule's 23.3 — and it stays close across the range people actually use. It earns its place by being something you can do in your head.

The tool checks it on itself. There's an output showing what your amount buys after exactly one halving period. At 3% it reads $50.17; at 7%, $50.83. Both near half, which is the rule validating itself across the range.

What that means for an actual goal

The abstraction stops being abstract as soon as you put a real number in it. At 3% over 25 years:

Today	Needs to become
A $50,000 salary	$104,689
A $500,000 retirement target	$1,046,889

A salary has to more than double over a working life just to stand still. Not to improve — to stay level.

And a retirement figure quoted in today's money needs roughly twice the nominal amount by the time you get there. This is the single commonest way long-range plans come up short: the target was set in today's terms and never converted, so the number that felt ambitious at the outset turns out to be about half of what was needed.

If you have a figure in mind for something decades away, converting it is thirty seconds of work and changes what you should be saving.

The rate is an input, and should be

Inflation isn't a single number. It varies by year, by country, and by what you personally buy.

A headline index describes a basket that may look nothing like your spending — anyone whose costs are dominated by rent, energy or childcare can experience something well away from the published figure.

Run it at two or three plausible rates and look at the spread. For a long projection, that spread is the honest output.

⚠️ And a single average rate is a simplification

Real inflation arrives unevenly — quiet decades and sharp years. Applying one average smooths all of it into a straight line.

That's genuinely useful for understanding how compounding behaves, and poor for predicting any particular year. The further out you project, the more the answer should be read as an order of magnitude.

Nobody knows the average rate for the next 25 years, and a calculator presenting one to the cent is being more confident than the world allows.

Looking backwards

The same reciprocal, read the other way, makes historic figures meaningful. A salary or a price from decades ago means very little until you convert it.

One caution: for actual historical periods, published index figures for those specific years beat a single assumed average — the real path was uneven, and the smooth line will differ from what happened.

⚠️ What this deliberately won't tell you

What to do about it.

Money held in cash loses purchasing power at roughly the rate shown. Money invested may gain more, or lose more — and comparing those is an investment question with risk attached, which depends on your timeframe, your circumstances, and how much loss you could actually absorb.

This sizes the problem honestly. That's the input to the decision, not the decision.

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General information, not financial advice. For decisions about savings, pensions or investments, talk to a qualified adviser.