Forum Discussion
How to Account for Inflation
First of all, there's no attachment, so it's hard to visualize how you've laid this out, to say nothing of how you incorporate the various "ins and outs," how many "ins" or "outs" there are.
That said, I'm attaching one way to do it. You'll notice that I created a table off to the side, a table in which you can make different assumptions for different types of "ins and outs." You should always use a table like this, rather than doing what's called "hard coding," where you would put your 3% assumption into each formula where it applied. Using a table allows you to test assumptions, change scenarios, without revising the formulas; you just change an assumption.
This is a very simple example. You can enhance it to your heart's content.
Let me know if you have questions or need further clarification.
Thanks IlirU, but wouldn't inflation diminish the value of the balance each year, not increase it? My assumption is that in 2026, $114,910 is not going to buy as much as $114,910 would buy today. Because of inflation, it will buy what, say, $110,000 would buy today. And $176,560 is not going to buy as much in 2044 as it would buy today.
scrail2004​ What I don't understand about your spreadsheet is where the numbers in Column B come from. On what basis are they "growing"? Does that reflect interest or investment income?
In any event, and I suspect this is what IlirU​ is also getting at with his version, where the year end balances increase in step with inflation: What he's done, what I've done in my first response, is simply show (it's all an estimate, of course) what it would take to continue to have the same buying power, given inflation.
You seem to be wanting the converse--but that's all it is--asking what would be the buying power of $XXX,XXX when it remains basically static and therefore diminishing in value. But you confuse the picture--or at least you confuse me--by having your column B increase at very arbitrary rates, varying from slightly over 2% to well under .1%.
It's possible that you'll find a satisfactory answer using the FV function, as I've done in the attached. If that's not what you are looking for, then please clarify further.