See what a dollar was actually worth

Why “a million dollars” doesn't mean what it used to

In 1980, a million dollars was a fortune. A nice house cost $50,000. A new car cost $7,000. A million dollars could fund a comfortable retirement, buy a vacation home, and still leave plenty for the grandkids.

Today, a million dollars in the same purchasing power would be roughly $3.9 million. The "million-dollar retirement goal" of 1980 is the "$4 million retirement goal" of today. Anyone treating $1M as their finish line in 2026 is targeting roughly $250K in 1980 purchasing power — far short of what their grandparents had in mind.

This is why every long-term financial plan has to factor in inflation. A 35-year-old aiming to retire at 65 with $1M is, in inflation-adjusted terms, aiming for the purchasing power of $412K today (at 3% inflation). That's roughly $16,500/year using the 4% safe withdrawal rule. Not poverty, but not the retirement most people imagine.

The solution isn't despair — it's bigger numbers. If you want the purchasing power of $1M today in 30 years, you actually need about $2.4M nominally. That changes how much you need to save monthly. Plug it into a retirement calculator and adjust.

Where inflation actually comes from

There are roughly four causes of sustained inflation, and they often happen together.

Demand-pull inflation: Too much money chasing too few goods. This is what happened after the 2020 stimulus — consumers had extra savings, supply was constrained, and prices got pushed up. Classic Keynesian inflation.

Cost-push inflation: Production costs rise (energy, labor, materials) and producers pass the costs to consumers. The 1970s oil shocks are the textbook example — OPEC quadrupled oil prices, and everything that depended on energy got more expensive.

Monetary inflation: The money supply grows faster than the economy. If there's more money chasing the same amount of stuff, prices rise. This is what hyperinflations look like — governments printing money to pay debts.

Expectations-driven inflation: People expect prices to rise, so they demand wage increases, businesses raise prices preemptively, and the expectation becomes self-fulfilling. This is what central banks fear most — once inflation expectations become “unanchored,” they're hard to bring back down.

The 2021–2023 inflation surge was a combination of all four: pandemic stimulus (demand-pull), supply chain disruptions and energy prices (cost-push), expanded money supply (monetary), and rising inflation expectations. That's why it took aggressive Fed action to get it back under control.

Why your personal inflation rate isn't 3%

The headline CPI number is an average across a typical urban consumer's spending. Your actual inflation rate depends on what you actually buy.

Healthcare inflation has averaged about 4–5% annually for decades — much higher than headline. If you spend 20% of your income on healthcare (older adults, chronic conditions), your personal inflation is meaningfully higher than CPI says.

College tuition has averaged 5–6% inflation for decades — sometimes double headline CPI. Parents of college-age kids face much higher real inflation than the average.

Housing has been particularly hot in recent years. Rent inflation hit 8% in 2022 and stayed elevated. Homebuyers face mortgage rates and prices that have outpaced wages dramatically.

On the flip side, consumer electronics have deflated for decades. A 65-inch TV cost $5,000 in 2010 and costs $400 today. Clothing has been roughly flat-to-down in real terms. International travel and dining out have been mixed.

If most of your budget is in fast-inflating categories (housing, healthcare, education), your effective inflation rate might be 5–6%. If it’s in slow or deflating categories (entertainment, electronics, secondhand goods), your rate might be 1–2%. Plan based on what you actually spend, not the headline.

How inflation gets quietly worse for savers

Inflation is sometimes called a "tax on savings" because it erodes the real value of money held in cash or low-yield accounts. Unlike actual taxes, you don’t see it on a bill — it’s invisible. But the effect is identical: your money buys less than it did before.

A simple example. You put $10,000 in a savings account paying 0.5% interest. After one year of 3% inflation, you have $10,050 nominally, but the purchasing power has dropped to about $9,750 in real terms. You lost $250 in buying power despite earning interest.

This is why "keep it safe in the bank" was good advice in 1980 (when savings accounts paid 8% and inflation was sometimes lower) and is terrible advice in 2026 (when most accounts pay 0.5% and inflation is 3%). The same instinct that protected your grandparents is actively destroying your purchasing power.

The fix is either high-yield savings accounts (currently 4%+ at online banks) for short-term money, or actual investments (stocks, bonds, real estate) for long-term money. The historical average stock market return of 7% real (above inflation) is what allows wealth to actually grow over time. Cash, by definition, can only keep up — and most savings accounts don’t even do that.

Inflation in a global context: India, Argentina, and the privilege of low inflation

Americans complaining about 3% inflation are doing so from a position of remarkable privilege. The US has had relatively low inflation for most of the post-WWII period and one of the most stable currencies in the world.

India, by comparison, has had inflation averaging around 6–7% for the past two decades, with spikes above 10% during food price crises. The rupee has steadily lost value against the dollar — partly due to inflation differentials. For Indian savers, just keeping pace with inflation requires more aggressive investing than American savers typically need.

Argentina has experienced multiple bouts of hyperinflation, including 200%+ annual inflation in 2023. Argentinian families have learned to immediately convert paychecks to dollars or hard assets because pesos lose value within weeks.

Turkey hit 85% inflation in 2022. Lebanon has had inflation above 200% during its economic collapse. Even Japan, after decades of deflation, has recently seen its first sustained inflation in a generation.

The lesson: low, stable inflation is a feature, not a default. The Fed’s 2% target is a global outlier in how good it is. Building financial plans that assume permanently low US inflation isn’t crazy, but a 5%+ stress test is reasonable — recent history shows it can happen, even here.