Overview

Main Menu Name: Assets

Calculates the effect of a specified rate of inflation on capital where a constant inflation-adjusted income is desired.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

Inflation occurs when it costs more to buy goods and services than it did before. More technically, inflation is a rise in the prices of goods and services. The inflation rate is the rate of change in prices.

A primary indicator of the inflation rate in the United States is the Consumer Price Index which tracks changes in prices paid by consumers. Similar measures such as the Producer Price Index measure inflation as it affects suppliers of goods and services.

Why should I use this calculator?

• To determine the amount of income necessary to keep up with a given level of inflation.
• To measure the actual income generated by an investment fund designed to provide a specified level of inflation-adjusted income.
• To determine the amount of principal that must be used or depleted in order to maintain a specified inflation-adjusted level of income.

Getting Started

Inflation occurs when it costs more to buy goods and services than it did before. More technically, inflation is a rise in the prices of goods and services. The inflation rate is the rate of change in prices.

A primary indicator of the inflation rate in the United States is the Consumer Price Index that tracks changes in prices paid by consumers. Similar measures such as the Producer Price Index measure inflation as it affects suppliers of goods and services.

The following table indicates yearly increases in the CPI:

Entering Data

1. Desired Income from Investments:  Enter the desired amount of income per year from an investment.
2. Income Producing Assets:  Enter the amount of capital available to produce the desired stream of inflation-adjusted income.
3. Assumed Return on Investments:  Enter the projected rate of return that will be earned on the capital fund.
4. Assumed Inflation Rate:  The projected rate of inflation.

Results

The program calculates the future income necessary, year-by-year, to maintain the same purchasing power as the original amount. It calculates the income earned on capital and any capital withdrawal necessary to maintain the desired inflation-adjusted income. And, also calculates the principal balance remaining at the end of each year.