What today’s money is worth in future dollars.
Future cost of the same goods
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Real value of that cash if it does not grow
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Two ways to read the same erosion
Inflation does two things to a sum of money, and this calculator shows both. First, it pushes up the future price of the goods that money buys: what costs $50,000 today will cost more in twenty years. Second, looked at from the other direction, it shrinks the buying power of cash that just sits there: $50,000 stuffed under the mattress will buy far less in two decades than it does now. The tool compounds your chosen rate forward to give the future cost, and discounts it back to give the real value of un-grown cash. Same force, two perspectives, and seeing both is what makes the long-term cost of holding cash click into place.
It is built for anyone planning over a long horizon: people saving for retirement, parents projecting school or university costs, or savers wondering whether a term deposit is really keeping them whole.
The Reserve Bank target, and why 3 percent is a fair default
The Reserve Bank of New Zealand is tasked with keeping annual inflation, measured by the Consumers Price Index, within a 1 to 3 percent band over the medium term. That is why the calculator defaults to 3 percent: it sits at the top of the target range and is a sensible, slightly conservative planning assumption. Over short windows inflation has run well above that band, and at other times below it, so for a multi-decade projection a steady mid-single-digit figure is a reasonable middle path. You can dial it up or down to stress-test your plan against a higher-inflation world.
$50,000 over 20 years at 3 percent
Take $50,000 and run it twenty years forward at 3 percent inflation. The two figures the tool returns tell the whole story.
| Step | Value |
|---|---|
| Amount today | $50,000 |
| Inflation rate | 3% a year |
| Future cost of the same goods (50,000 x 1.03^20) | $90,306 |
| Real value of that cash if it does not grow (50,000 / 1.03^20) | $27,684 |
A basket of goods costing $50,000 now will cost about $90,306 in twenty years. Put the other way, the $50,000 held as idle cash will buy only what $27,684 buys today, so it loses nearly half its purchasing power. The bars below show the rising future cost climbing away from the flat $50,000 you started with.
Why this is the case against holding cash
The real-value figure is the uncomfortable one. Money in a low-interest transaction account, or under the proverbial mattress, goes backwards in real terms every year inflation runs positive. Even a term deposit can lose ground once you account for tax on the interest: if a deposit pays 4 percent but inflation is 3 percent, your pre-tax real return is just 1 percent, and resident withholding tax on the interest can wipe most of that out. This is the core reason advisers push long-term savers toward growth assets like shares or a diversified KiwiSaver fund, which have historically outpaced inflation over long periods, rather than parking everything in cash. New Zealand has no general capital gains tax on most long-term share investing, so that growth is largely untaxed for ordinary local holdings, which sharpens the case further.
A practical way to use the tool: when you set a savings goal in today’s dollars, run it forward to your target date first. A "$50,000 house deposit" goal quietly becomes a much larger number if the purchase is two decades away, and planning against the future figure stops you from arriving short.
Should I use a real or nominal return when I plan?
Either works as long as you are consistent. The cleanest approach for long-term goals is to think in today’s dollars and use a real (after-inflation) return, which sidesteps having to inflate every future figure. If you prefer nominal returns, then inflate your target with this tool so you are comparing like with like. Mixing the two, a nominal return against a today-dollars goal, is the classic error that makes plans look healthier than they are.
Does the calculator account for tax?
No, it models pure price inflation, not tax. To judge whether an investment beats inflation in your pocket, subtract the tax you pay on the return first. Interest is taxed at your marginal rate through RWT, while PIE funds are capped at a 28 percent prescribed investor rate, so the after-tax real return is what actually preserves your buying power.