The Inflation Treadmill

🏃 The Inflation Treadmill: Why 4% Interest Is Really 0% Return

The Hard Truth: Money Is Always Moving  

  - Your money is never in a neutral state. It is either compounding or corroding.  

  - That simple truth is often obscured by headline interest rates and a deceptive partner: inflation.

The Ugly Math Nobody Tells You  

  - For a taxpayer in the 24% federal tax bracket, a nominal interest rate of about 4.0% is required just to maintain purchasing power against an average inflation rate of 3.0%.  

  - You are running at 4% just to break even.

Here is the treadmill effect in action:  

  - Headline nominal yield (bank pays): +4.00%  

  - Tax erosion (IRS takes 24% of 4.00%): -0.96%  

  - After-tax yield (your pocket receives): +3.04%  

  - Inflation erosion (CPI takes 3.0% annually): -3.00%  

  - Real after-tax return (actual purchasing power): +0.04%

- ⚠️ The Hidden Tax: Inflation Is the IRS’s Silent Partner  

  - The nominal 4.0% yield is immediately reduced by tax on the interest, leaving you with only 3.04% after tax.  

  - Inflation then erodes your money at 3.00%, so your real gain is a meager 0.04%, or just $0.04 per $100 saved.

Translation  

  - You are running on a 4% treadmill just to barely match the 3% speed of inflation.  

  - Earn anything less than 4% in this scenario, and you are effectively losing money every single year.  

  - Inflation quietly dissolves your purchasing power while you celebrate the “headline” yield.

Your Next Step  

  - In a world where breaking even requires a 4% interest rate, willpower-based saving is not enough—you need a strategy that creates automatic, scalable compounding.  

  - What is the single most important action you take to ensure your savings are outpacing inflation?

Inflation: The Univited Silent Partner

​