Many Americans see their account balances growing and assume they’re building wealth, but don’t realize how much of that growth is being canceled out by rising prices.
A new study by RealWorldInvestor.com, an investing review site, has calculated how inflation will erode Americans’ savings over the next four decades, revealing stark regional differences in how much of their interest gains savers will actually keep.
National Findings
The analysis shows that with $8,000 in savings today, the average American will technically earn $36,782.66 in interest over 40 years (at a 4.40% interest rate), but they will ultimately lose $30,713.93 (83%) of those gains to inflation – keeping just $6,068.73 in real terms.
This means that after four decades, the initial $8,000 would be worth just $14,068.73 in actual purchasing power, despite the account balance showing $44,782.66.
The first 20 years show a similar pattern on a smaller scale. Americans will earn $10,927.79 in interest on their $8,000 starting balance, but lose $8,438.42 (77.2%) to inflation, netting just $2,489.37 in real gains – which means an actual purchasing power of $10,489.37.
| 2034 | Amount gained after interest | $4,305.38 |
| Amount lost due to inflation | $3,176.07 | |
| Net amount gained after inflation and interest | $1,129.31 | |
| Real value of the average balance | $9,129.31 | |
| 2044 | Amount gained after interest | $10,927.79 |
| Amount lost due to inflation | $8,438.42 | |
| Net amount gained after inflation and interest | $2,489.37 | |
| Real value of the average balance | $10,489.37 | |
| 2054 | Amount gained after interest | $21,114.21 |
| Amount lost due to inflation | $16,976.24 | |
| Net amount gained after inflation and interest | $4,137.96 | |
| Real value of the average balance | $12,137.96 | |
| 2064 | Amount gained after interest | $36,782.66 |
| Amount lost due to inflation | $30,713.93 | |
| Net amount gained after inflation and interest | $6,068.73 | |
| Real value of the average balance | $14,068.73 |
The research also found that someone starting with this balance and adding $100 monthly would still fall severely short of retirement needs, requiring an additional $1.07 million (or a starting savings balance of $162,618.48) to fund a 25-year retirement with $50,000 annual living costs.
If a person managed to save $500 a month for 40 years, they would still need an additional $549,955.61 to cover retirement expenses over 25 years.
Top five metros most affected by inflation
| Rank | Metros | Initial balance | Interest gained | Lost to inflation | Net gain | Real value |
| 1 | Philadelphia-Camden-Wilmington | $8,000 | $36,782.66 | $36,649.80 (99.64%) | $132.86 | $8,132.86 |
| 2 | Miami-Fort Lauderdale-West Palm Beach | $8,000 | $36,782.66 | $32,893.70 (89.2%) | $3,888.97 | $11,888.97 |
| 3 | Seattle-Tacoma-Bellevue | $8,000 | $36,782.66 | $32,751.32 (91.3%) | $4,031.35 | $12,031.35 |
| 4 | San Diego-Carlsbad | $8,000 | $36,782.66 | $32,568.46 (88.5%) | $4,214.20 | $12,214.20 |
| 5 | Phoenix-Mesa-Scottsdale | $8,000 | $36,782.66 | $31,533.29 (85.7%) | $5,249.37 | $13,249.37 |
Philadelphia-Camden-Wilmington residents will be hardest hit by inflation over the next 40 years. Savers in this region will see almost all of their interest gains wiped out by inflation, keeping just $132.86 of the $36,782.66 interest earned, a loss of 99.6% to inflation.
The Miami-Fort Lauderdale-West Palm Beach area places second as the most inflation-affected region, with savers keeping only $3,888.97 of their interest earnings after four decades. This means 89.4% of their interest gains will be erased by inflation.
For Seattle-Tacoma-Bellevue, the long-term inflation toll amounts to $32,751.32, wiping out 89% of interest earned. The real return stands at just $4,031.35 after 40 years.
San Diego-Carlsbad residents will face similar challenges, with $32,568.46 of their interest gains erased by inflation – 88.5% of the total, which means they’ll retain just $4,214.20 in real interest gains over 40 years.
Rounding out the top five most affected areas is Phoenix-Mesa-Scottsdale, where savers will keep just $5,249.37 of their interest earnings, losing $31,533.29 of their interest gains to inflation over 40 years – an 85.7% loss.
Top five metros least affected by inflation
| Rank | Metros | Initial balance | Interest gained | Lost to inflation | Net gain | Real value |
| 1 | Cleveland-Akron | $8,000 | $36,782.66 | $24,459.00 (66.5%) | $12,323.66 | $20,323.66 |
| 2 | Kansas City | $8,000 | $36,782.66 | $25,556.72 (69.5%) | $11,225.94 | $19,225.94 |
| 3 | Milwaukee-Racine | $8,000 | $36,782.66 | $26,057.05 (70.8%) | $10,725.61 | $18,725.61 |
| 4 | Cincinnati-Hamilton | $8,000 | $36,782.66 | $26,249.12 (71.3%) | $10,533.54 | $18,533.54 |
| 5 | Urban Alaska | $8,000 | $36,782.66 | $27,933.22 (76%) | $8,849.44 | $16,849.44 |
On the other hand, Cleveland-Akron residents will keep $12,323.66 of their interest earnings after 40 years, which means their initial savings will grow to $20,323.66 in real purchasing power. That translates to a 66.5% loss of interest gains to inflation – the lowest among all metro areas.
Kansas City places as the second-best area for savers, with residents keeping $11,225.94 of their interest gains after 40 years, while 69.5% of their total interest is lost to inflation.
Milwaukee-Racine is next, with savers keeping $10,725.61 of their interest gains, meaning residents will lose 70.8% of their earnings to inflation.
Cincinnati-Hamilton follows closely, with savers retaining $10,533.54 of their interest earnings. Their $8,000 initial savings will grow to $18,533.54 in real purchasing power – a 71.3% loss to inflation.
The fifth-best area for savers is Urban Alaska, where residents will retain $8,849.44 after inflation – a loss of 76% of the total interest earned. Their $8,000 starting balance will grow to $16,849.44 in real purchasing power.
Adam Koprucki, founder of RealWorldInvestor.com, commented on the findings, “One common misconception is that simple compound interest will build substantial wealth over decades, when the reality is that inflation acts as a nearly invisible tax that substantially reduces the true growth of your savings.
“Earning 4.4% interest doesn’t mean you’re actually 4.4% richer each year. In fact, our analysis shows that in many regions, particularly on the coasts, decades of consistent saving may result in practically zero real growth.
“Our study clearly shows the pressing need for Americans to think beyond traditional savings accounts if they want to build genuine wealth. With the right investment approach, even modest monthly contributions can grow significantly more than inflation over time.”
