Purchasing power
A future balance and today’s buying power are different views.
The calculator reports a nominal future amount and an estimate adjusted by a user-selected annual inflation rate. The second amount is a mathematical translation, not a forecast of a household’s future budget or a promise of purchasing power.
01 / FIELD NOTE
Nominal value
Nominal value is the result of the contribution and return assumptions before adjusting for price changes. It is denominated in future dollars. It does not mean those dollars will buy the same goods and services as dollars today.
02 / FIELD NOTE
The simplified adjustment used here
The model divides the projected nominal value by (1+i)^y, where i is the annual inflation assumption and y is the selected number of years. This is a constant-rate discount to express a present-value equivalent. If the inflation assumption changes, the adjusted figure changes even though the nominal balance does not.
03 / FIELD NOTE
A general price index is not a personal budget
A broad consumer price index measures average price changes for a defined basket and population. A household’s spending pattern, location, medical needs, housing, taxes, and timing can differ. A historical index is not a prediction of future inflation.
04 / FIELD NOTE
Return and inflation should be read together
A positive nominal return does not necessarily mean an increase in purchasing power. Comparing a return assumption with an inflation assumption can help explain the concept, but this tool separately compounds a nominal return and then adjusts the endpoint. It does not model a real return series, taxes on returns, fees, or changing inflation.
05 / FIELD NOTE
Limits and further reading
The result does not estimate a retirement spending need or the price of health care, housing, or any individual good. Use the illustration to identify which assumption matters, then use official price data and suitable professional advice for decisions that depend on a household budget.