Definition

Inflation

Inflation is the sustained increase in general prices that reduces money’s purchasing power over time.

Model how price growth changes future target amounts and real returns.

Last reviewed: 2026-03-03 | Review cycle: 120 days | Next review due: 2026-07-01

How It Works

Inflation compounds over time, meaning long-horizon goals often require significantly higher nominal targets.

Ignoring inflation can make plans appear on track while real goal coverage remains weak.

Inflation assumptions should be revisited periodically to maintain planning relevance.

Scenario

Current annual expense is $40,000 with 3% inflation over 20 years.

Outcome

Required nominal spending in future years can be materially higher than today’s amount.

Scenario

Education fund target is set in today’s dollars only.

Outcome

Nominal target may be underfunded by the time funds are needed.

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Why does low inflation still matter in long plans?

Even moderate inflation compounds into large purchasing-power differences over decades.

Should inflation assumptions be fixed forever?

No. Review them as macro conditions change.