Use your own amount, time horizon and inflation assumption.
“Today’s money” and “future money” are two valid ways to express the same plan, but they cannot be mixed casually. Today’s money removes future inflation so values are easy to understand in current purchasing power; future money shows the nominal currency amounts expected at each future date.
Start with the two meanings
Today's money expresses a value in current purchasing power. It answers a familiar question: What would this lifestyle, expense or goal feel like at today's prices?
Future money is the nominal currency amount expected at a later date after applying an inflation assumption. It answers a different question: How many currency units might be needed in that future year?
A simple example
Suppose something costs 100 today and you model 5% annual inflation for 20 years. The future nominal cost is about 265. That does not mean the underlying lifestyle became 2.65 times better or more luxurious. Most of the increase simply reflects the assumed decline in purchasing power of each currency unit.
Look at the same idea in reverse: If you still had only 100 in 20 years, its purchasing power under a constant 5% inflation assumption would be roughly 38 in today's terms.
Common ways projections become confusing
One common mistake is to compare a future nominal corpus with today's expenses without adjusting either side. Another is to assume that a higher future number automatically means a higher standard of living. A third is to switch between today's money and future money midway through a calculation without making the change explicit.
How Carrowmont uses the distinction
Carrowmont labels values such as today's purchasing power and future currency so you can see which type of number you are looking at. In retirement planning, this allows you to understand a future retirement budget while still relating it back to the lifestyle it represents today.
The conversion goes both ways
Future nominal cost = Today’s cost × (1 + inflation)^yearsToday’s-money equivalent = Future nominal amount ÷ (1 + inflation)^yearsReturns must use the same basis
If cash flows are modeled in today’s money, use a real investment return after inflation. If cash flows are inflated into future nominal amounts, use a nominal return. Using nominal returns with uninflated spending overstates real progress because inflation is counted on the asset side but ignored on the liability side.
(1 + nominal return) ÷ (1 + inflation) − 1Today’s money is often easier for lifestyle decisions
Most people understand what $6,000, €2,000 or $4,000 buys today better than a much larger nominal amount decades from now. Showing today’s-money retirement income can therefore improve comprehension, as long as the calculation consistently uses real returns or discounts the future result back by inflation.
Future money is useful for funding and cash-flow schedules
Bank balances, future tuition invoices and portfolio values will be nominal amounts at the time they occur. Future-money views can therefore help with operational funding, but large numbers can look deceptively impressive if purchasing power is not shown alongside them.
Common consistency errors
- Inflating the goal but also using a return that was already stated in real terms.
- Keeping expenses fixed in today’s money while using nominal portfolio returns.
- Comparing a future $3 million portfolio directly with a current $1 million target.
- Applying inflation twice to an expense already quoted for the future year.
- Calling nominal investment growth “real wealth creation” without adjusting for inflation.
Discounting and inflation adjustment are related but not identical
Inflation converts purchasing power across time. A financial discount rate can also include time value, risk and opportunity cost. Do not use a high investment-return discount rate to claim that a future expense is cheap in today’s money; for consumer purchasing power, the inflation rate is the relevant conversion.
Choose one reporting convention for the whole page
A retirement chart becomes confusing if expenses are in today’s money while account balances are future nominal values. Either show both in future money, or discount both to today’s purchasing power. If both views are useful, label them explicitly and explain the conversion.
Real values make cross-year comparisons fairer
A salary doubling over 20 years may sound impressive, but if the price level also doubled, purchasing power is unchanged. Real values remove the price-level effect and make lifestyle comparisons across decades easier to interpret.
Worked example: One lifestyle can be expressed in two valid money bases
Suppose a lifestyle costs 100,000 a month today. At a constant 3% inflation assumption, the same illustrative purchasing power would require about 180,611 a month in 20 years.
| Planning frame | Spending input | Return assumption | What the output means |
|---|---|---|---|
| Today’s money | Keep the lifestyle at today’s purchasing power | Use a real return if inflation is removed from the cash flows | Results are easier to compare with today’s lifestyle |
| Future nominal money | Inflate the spending to future currency amounts | Use a nominal return | Results show the currency amounts that may actually appear in the future |
Both approaches can be valid. The error is to mix them—for example, inflating spending into future money and then also using a real return that has already removed inflation, or discounting an already-real cash flow again for inflation.
Checklist: Keep every input and output on one money basis
- Label each spending figure as today’s money or future nominal money.
- Check whether the return assumption is nominal or real.
- If you inflate a future cost, do not add the same inflation a second time elsewhere.
- When comparing two plans, convert both to the same basis first.
- Use today’s money for lifestyle intuition and future nominal money when actual future cash amounts are needed.
- Document the convention so another reader can understand the projection.
For the purchasing-power direction, see Future value of money after inflation. For the future-cost direction, see Future cost of expenses.
Frequently asked questions
Which view is better?
Neither is inherently better. Today’s money is intuitive for purchasing power; future money is useful for nominal cash-flow planning. The key is consistency and clear labels.
Can I compare a future portfolio balance with today’s target?
Not directly. Inflate the target to the same future date or discount the future portfolio back to today’s purchasing power.
What return should I use with today’s-money expenses?
Use a real return, or model in nominal terms first and convert the result back. Do not pair nominal returns with permanently uninflated spending.
Why do future numbers look so large?
Part of the increase is inflation. A larger nominal number does not necessarily represent the same increase in purchasing power.
Sources and how this guide was prepared
This Carrowmont guide was drafted with AI assistance, then structured and checked against the cited external sources and Carrowmont calculation conventions. Worked examples are illustrative, use simplified assumptions, and are not forecasts or individualized recommendations.