Tools & Calculators

Savings, Taxes, & Inflation

November 5, 2020

Shared by Freelandt Caldwell Reilly LLP

The value of your savings can be affected by both taxes and inflation. Use this calculator to determine how much your savings will be worth with this in mind, plus get more information and a year-by-year savings schedule.

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from one of our qualified professionals regarding finance issues.

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Definitions

Years

The number of years you have to save.

Monthly contributions

The amount you will contribute each month to your savings. This calculator assumes that you make your contribution at the beginning of each month.

Amount currently invested

Total you have saved to date to be included in this analysis.

Expected rate of return

This is the annually compounded rate of return you expect from your investments before taxes. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2019, had an annual compounded rate of return of 13.2%, including reinvestment of dividends. From January 1, 1970 to December 31st 2019, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.7% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return does not reflect sales charges and other fees that investment funds and/or investment companies may charge.

Federal tax rate

Your marginal federal tax rate.

State tax rate

Your marginal state tax rate.

Expected inflation rate

This is what you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2019 the CPI has a long-term average of 2.9% annually. Over the last 40 years highest CPI recorded was 13.5% in 1980. For 2019, the last full year available, the CPI was 1.8% annually as reported by the Minneapolis Federal Reserve.

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Disclaimer:

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from one of our qualified professionals regarding finance issues.

Important Notice:

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