Key takeaways
- Every future amount is two numbers — its face value and what it buys.
- Real return = (1 + nominal) ÷ (1 + inflation) − 1: division, not subtraction.
- Cash reserves, fixed targets, and long horizons feel inflation hardest.
Every future amount is two numbers
Any projected balance has a face value and a purchasing-power value. The face value is what the statement will say; the purchasing-power value is what it will buy. At 3% inflation, prices roughly double every 24 years — so a 30-year plan that ignores the difference overstates its own result by more than half.
This is why every chart in Capital Allocation carries an inflation-adjusted twin. The nominal curve flatters; the real curve informs.
Example · the doubling clock
At 3% inflation, prices double in about 24 years (72 ÷ 3). A $1,000,000 balance 24 years out buys what $500,000 buys today — same digits, half the groceries.
Division, not subtraction
The real return is (1 + nominal) ÷ (1 + inflation) − 1, not nominal minus inflation. At 7% growth and 3% inflation the real return is 3.88%, not 4% — a small gap that compounds into a meaningful one over decades, always in the optimistic direction if you use subtraction.
Where inflation bites hardest
Three places. Cash reserves: money parked for safety pays inflation as its fee. Fixed targets: a goal set in today’s dollars but scheduled decades out needs its target inflated, or it will arrive underfunded while looking on track. Retirement spending: a budget that must rise with prices for thirty years is a very different liability from a flat one.
A sane planning posture
Use a long-run assumption — many planners test 2–4% — and then read results in today’s money only. Test the plan at a hotter rate to see which goals are fragile. None of this predicts inflation; it makes the plan honest about not knowing.
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