Inflation: Our Constant Companion

A penny saved isn't necessarily a penny earned these days. Over a period of time, that penny could be worth a whole lot less due to inflation's bite.

Inflation is our constant companion, according to the U.S. Bureau of Labor Statistics (BLS). Dating back to 1945, the purchasing power of the dollar has declined in value every year but two -- 1949 and 1950. Still, inflation rates were moderate until the 1970s. The average annual rate from 1900 to 1970 was approximately 2.5 percent. From 1970, however, the average rate hit about 6 percent, topping out at 13.3 percent by 1979. Following the high inflation of the '70s and '80s, rates have been in the 2- to 4-percent range in recent years.

In today's economy, inflation's easy to overlook when planning your financial future. An inflation rate of 4 percent might not seem like much until you consider its effect on the purchasing power of your money over the long term. Over 20 years, 4 percent inflation annually would drive the value of a dollar down to $0.44.

Financial Calculators Meeting your long-term investment goal is dependent on a number of factors. This not only includes your investment capital and rate of return, but inflation, taxes and your time horizon. Use this Investment Returns Calculator to help you sort through these factors and determine your bottom line. Click the "View Report" button for a detailed look at the results.