Calculate the effect of inflation on your investments. For an initial investment followed by periodic deposits, find out how much you will have in the future and what its value will be in today's dollars. Alternatively, calculate how much you would need to invest today to attain a specified inflation adjusted future value.
- Initial Investment (PV)
- is the present value or principal amount to be invested.
- Effects of Inflation on PV
- this is your original investment dollars in the future adjusted for inflation. This value will be less then PV; it will be what your investment is worth in today's dollars at the future date.
- Target Future Value
- the inflation adjusted future value (FV) of your investment account
- Number of Years
- how long is this investment? Decimals are allowed, for example, 6.5 years is 6 years 6 months; 2.25 years is 2 years 3 months
- this is the amount of periodic deposits you will make to your account over the time of your investment
- Calendar periods that contributions will be made. (e.g. Monthly, Quarterly, Annually, etc.)
- Annual Interest Rate
- is the annual nominal interest rate or "stated rate" in percent. r = R/100, the interest rate in decimal
- the frequency with which compounding will occur. (e.g. Monthly, Quarterly, Annually, etc.)
- Annual Inflation Rate
- the average rate of inflation you expect over the time period of your investment. You can calculate the average inflation rate of the past to make an estimate.
- Number of Periods (t)
- commonly this will be number of years but periods can be any time unit. Enter whole numbers or use decimals for partial periods such as months for example, 7.5 years is 7 yr 6 mo.
- Compounding (m)
- is the number of times compounding occurs per period. If a period is a year then annually=1, quarterly=4, monthly=12, daily = 365, etc.
- Continuous Compounding
- is when the frequency of compounding is increased up to infinity.
- Future Value (FV)
- the calculated future value of your investment. The dollar amount that will be in your account.
- FV Adjusted for Inflation
- the future value adjusted for inflation. This will be FV represented in today's dollars.
Example Investment Calculations
Investment calculations are based on the Future Value Formulas.
Suppose you recently found that $250,000 is what you would need to retire today in a retirement lifestyle that you expect to lead. However, you will be retiring 10 years from now. So, you want to find out how much you need in 10 years to have an equivalent of $250,000 in today's dollars.
If you can get 5% annual return in an investment account that compounds daily and you expect the rate of inflation for the next ten years to average about 2.25%, what lump sum amount would you need to invest today to achieve your goal? You will not be making additional contributions.
In the calculator enter:
Target Future Value : 250,000
Number of Years : 10
Contributions : 0
Annual Interest Rate : 5%
Compounding : Daily
Annual Inflation Rate : 2.25%
Your results will be:
|Initial Investment (PV)
|Effects of Inflation on PV
|Future Value (FV)
|Target Future Value
FV Adjusted for Inflation
You would invest $189,616.91 today to have a value in 10 years of $250,000.00 in today's dollars. Your account statement after 10 years will read $312,300.86 however, adjusted for the effects of inflation, it will have a value of $250,000.00 in today's dollars.