The value of money after twenty years
At 3% a year, an amount kept as cash buys about 55% of what it does today after twenty years — 1,000 becomes the equivalent of roughly 554. Put the other way, you would need about 1,806 in twenty years to buy what 1,000 buys now. Neither figure comes from prices rising by 60%; it comes from 3% compounding, which is the same mechanism as compound interest running against you.
Year by year
| 1 | $970.87 | $1,030.00 | $29.13 |
| 2 | $942.60 | $1,060.90 | $57.40 |
| 3 | $915.14 | $1,092.73 | $84.86 |
| 4 | $888.49 | $1,125.51 | $111.51 |
| 5 | $862.61 | $1,159.27 | $137.39 |
| 6 | $837.48 | $1,194.05 | $162.52 |
| 7 | $813.09 | $1,229.87 | $186.91 |
| 8 | $789.41 | $1,266.77 | $210.59 |
| 9 | $766.42 | $1,304.77 | $233.58 |
| 10 | $744.09 | $1,343.92 | $255.91 |
An estimate, not financial advice. Figures are illustrative and depend on assumptions listed below. Check anything you plan to act on with a qualified adviser or the provider itself.
The worked example below, drawn. One line is what the money buys as time passes; the other is what it would take to keep up.
Inflation compounds. Twenty years at 3% is not 60%, it is a fall to about 55% of today's value.
The rule of 72 works here too: 72 divided by the rate is roughly the years until money halves in value.
A return below the inflation rate is a real loss, however positive the number on the statement looks.
How it works
The formula
Prices rise by a compounding factor:
prices = (1 + inflation)^years
The two directions, from that one factor:
what it will buy = amount / prices
what you would need = amount x prices
With a return on the money, the first becomes:
nominal = amount x (1 + growth)^years
real = nominal / prices
which is the same as compounding at:
real rate = (1 + growth) / (1 + inflation) - 1
Not growth minus inflation. That approximation is
close at small numbers and wrong where it matters.
Years until money halves in value:
ln(2) / ln(1 + inflation)
What it assumes
- A single constant rate for the whole period. Real inflation is nothing like constant, and any individual decade can sit far away from a long-run average.
- The rate you type is the one that applies to you. A published index is a basket weighted for an average household, and nobody spends like the average — if rent and energy are a large share of your spending, your experienced rate can run above the headline for years.
- The return field is nominal and before tax and charges. Both come off it directly, and both are a real reduction in what the money buys.
- Real growth is computed as the ratio of the two factors rather than the difference of the two rates. The subtraction is the common approximation and it overstates the answer.
- The halving figure is the exact logarithm rather than the rule of 72, which is tuned for the middle of its range and drifts either side of it.
- The figures carry no currency symbol on purpose. The arithmetic is the same in pounds, euros or dollars, and the tool follows whichever currency your locale uses.
Common questions
Is a 3% assumption reasonable?
It is a common planning figure and it is a guess. Many central banks target 2%, long-run realised averages in developed economies have often been closer to 3%, and any individual decade can be far outside both. The useful approach is to run the figure you consider pessimistic as well as the one you expect, because the gap between them over twenty years is large.
Does my own inflation rate differ from the published one?
Almost certainly. A headline index is a basket weighted for an average household, and nobody spends like the average. If rent and energy are a large share of your spending, your experienced rate can run well above the published one for years at a time, which is why a national figure is a starting point rather than an answer.
Sources
Method written and checked by Tessalor on Jul 31, 2026.
The full method, worked example and every assumption behind this figure are on Inflation Impact Calculator.