Inflation-adjusted wealth simulator

Two calculations run side by side. The first is ordinary compound growth; the second takes that result and asks what it will buy.

The nominal line

The balance compounds monthly. The annual yield you set is divided by twelve, applied, and your monthly contribution is added — twelve times a year, every year.

Monthly compounding runs slightly ahead of annual compounding at the same headline rate, which is why this tool and the compound growth calculator will not agree to the penny. The simulator is the more optimistic of the two on the nominal line, and the more sobering once inflation is applied.

The purchasing-power line

The second line is the first one divided by cumulative inflation over the same period.

This is the figure almost every projection omits. Your statement will show the nominal number. What you can actually buy with it is the other line, and the distance between them is the entire point of the chart.

Each uses the tool's own arithmetic, so you can reproduce them by typing the inputs in above.

A lump sum left alone: 10,000 for 20 years

At a 7% yield with 3% inflation, 10,000 becomes roughly 40,400 on paper. In today's money that is about 22,400 — the statement grew fourfold, the purchasing power only a little over twofold. The gap is 45%, and it was never visible in the nominal figure.

Regular contributions: 500 a month for 25 years

Same 7% and 3%. The balance reaches around 405,000 nominally and about 193,000 in today's money. More than half the headline number is absorbed by inflation, because the longer the horizon the more compounding works on both sides of the equation.

When inflation is close to the yield: 50,000 at 5% with 4% inflation

Over 15 years the balance roughly doubles to 105,700. In real terms it reaches about 58,700 — a gain of 17% in purchasing power across fifteen years, from a product that appeared to pay 5% a year. This is the scenario worth internalising: a yield that beats inflation by a single point is barely a gain at all.

Both rates are assumptions, not forecasts

The tool seeds the fields with recent published figures where they are available — the 10-year Treasury yield and US CPI, each labelled on screen with its source — and with long-run averages where they are not. Neither is a prediction. Both are yours to change, and the sensible use of the tool is to try a pessimistic pair and see whether the plan still works.

Inflation is personal

CPI measures a national basket. Your inflation rate depends on what you actually buy: housing, education and healthcare have run well above headline CPI in many markets for years, while electronics have fallen. If your spending is weighted toward the first group, the real line here is optimistic.

It assumes a steady return

Returns are applied evenly, month after month. Real markets deliver the same average as an unpredictable sequence, and the order matters — especially once you are withdrawing, when a fall early on forces you to sell more units to fund the same income.

Fees and tax are not deducted

Platform charges, fund expense ratios and tax all come out before you see the money. Subtract them from the yield you enter rather than reading the output as net.

The yield and the fallback measure different things

When live data is unavailable the tool falls back to a long-run equity average, while the live figure is a government bond yield. They are not the same kind of number, which is why the label under each field tells you which one you are looking at rather than presenting either as "the" expected return.

If the real line is lower than you expected, the lever is usually the yield rather than the contribution. Compare what is actually available in your market with real yields, minimums and lock-in periods, or read what income your capital actually produces for the arithmetic behind turning a balance into cash flow.