What is the difference between real and nominal dollars?

In a word: inflation.

ESPlanner presents its results in terms of real dollars (also called "today's dollars"). All calculations are done in nominal dollars and then converted. The difference between nominal and real dollars appears most obviously anytime you have a fixed payment or receipt that continues over several years. These values will be reported as decreasing over time, but dollars that are adjusted for inflation over the same period will be the constant value originally entered. This can lead to some confusion. For example mortgage payments are constant over time, every month you make the same payment, but due to inflation the dollars you pay with are worth less each year. In the housing reports this shows up as a decrease in your mortgage payment from year to year because of the conversion from nominal to real dollars.

For those interested in the details of the calculation, a "nominal" dollar paid out next year, for any purpose, is worth 1/1.0316 "real" dollars in this year's terms (assuming a historical average for inflation of 3.16% per year).

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