It still buys what 55,368 buys today — 44.6% of the value is gone
Purchasing power falls by dividing, not subtracting: 100,000 divided by 1.03 to the twentieth is 55,368. So a sum left untouched for twenty years at 3% inflation retains 55.37% of what it could buy. Nothing was spent and no balance fell; the money simply buys less.
Future purchasing power = amount / (1 + inflation)^years
The compounding is what makes the figure larger than intuition suggests. Twenty years at 3% feels like it should cost 60%, by multiplying, and the real answer is 44.6% â because each year’s erosion applies to an already-reduced amount. Over thirty years at the same rate, only 41% of the purchasing power survives.
At 6% instead of 3%, the same twenty years leaves 31,180
Doubling the inflation rate does far more than halve the outcome. At 3% over twenty years, 100,000 retains 55,368; at 6% it retains 31,180. The relationship is exponential in the rate as well as the horizon, which is why periods of even moderately elevated inflation do disproportionate damage to cash holdings.
The rule of 70 gives a fast approximation of when purchasing power halves: divide 70 by the rate. At 3% that is about 23 years, at 6% about 12, at 10% about seven. It is a useful sanity check on any long-horizon plan that assumes a benign inflation environment throughout.
Cash is certain to lose value slowly; the alternatives may lose it quickly
The erosion shown here is the cost of holding money in something that pays nothing. A savings account paying 4% against 3% inflation preserves purchasing power and adds a little; one paying nothing loses the full amount. The real interest rate — the nominal rate less inflation — is what decides whether a holding gains or loses ground.
That is not an argument for holding no cash. An emergency fund exists to be available at short notice without loss of capital, and paying a few percent a year in eroded purchasing power is the premium for that certainty. The argument applies to cash held far beyond that purpose, where the slow, certain loss compounds against you for decades.
One rate, held constant, applied to a basket that is not yours
Inflation is assumed constant for the whole period. Real inflation varies year to year and has ranged from negative to double digits within living memory in most economies; a single average conceals sequences that matter, particularly for anyone drawing on the money during a high-inflation stretch.
The rate used is also a national average across a standard basket. Personal inflation depends on what you actually buy, and households weighted toward rent, energy or healthcare have generally faced higher rates than the headline figure. For a long projection, run it at a rate above the historical average as well as at it.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
What the calculation assumes
- Inflation is constant at the rate you enter; results are estimates, not forecasts.
- The amount earns no return; it simply sits while prices rise.
- A single national inflation rate represents your personal cost of living.
- For educational and general reference use.
Where it stops
- Real inflation varies year to year and by country, so a fixed rate is a simplification.
- Your personal inflation can differ from the headline rate depending on what you buy.
- It ignores any interest or investment growth that could offset inflation.
- Very long horizons magnify small rate differences, so treat distant figures with caution.