Inflation Calculator
Last updated July 2, 2026
Last reviewed July 8, 2026
Inflation is the force that quietly erodes the purchasing power of money over time, and its effect on retirement planning is often underestimated because the numbers move slowly enough to feel manageable in any given year. The Bureau of Labor Statistics has calculated that the average annual inflation rate in the United States since 1926 has been approximately 3 percent. At 3 percent annual inflation, a dollar today is worth about 55 cents in 24 years. In concrete terms: a $4,000 monthly retirement income that feels comfortable at 65 will have the purchasing power of roughly $2,200 by age 89 if inflation averages 3 percent and no adjustments are made.
Social Security benefits include a cost-of-living adjustment that partially protects against inflation — the 2026 COLA was 2.8 percent. Fixed pension payments generally don't adjust, which is why pension holders need to plan for the gap between their fixed income and rising expenses as they age. The inflation risk for retirees is particularly concentrated in healthcare, where costs have historically risen faster than general inflation. A retirement plan that doesn't explicitly account for healthcare cost inflation — often estimated at 4 to 5 percent annually for out-of-pocket costs — tends to run short of the projected income later in retirement when medical needs are highest.
Inflation doesn't feel dangerous year to year, but compounded over a 20 to 30 year retirement it can cut purchasing power nearly in half. Any retirement income projection that doesn't include an inflation assumption is giving you an optimistic picture. Build the calculation with at least 2.5 to 3 percent annual inflation, and account separately for healthcare costs that tend to rise faster than the general consumer price index.