Estimated estate tax liabilities should be subtracted when calculating an after-tax amount. Although a life insurance policy pays a lump sum amount or annuity upon death, this benefit is probably earmarked for other purposes and, for planning purposes, should not be added in the total assets. Inflation An increase in price levels, expressed as an annual rate. The PPI measures inflation at the producer level, and is a harbinger of higher prices for consumers. The CPI is a price index of consumer inflation that calculates monthly inflation rates based on extensive surveys of changes in prices for such consumer goods as clothes, food, transportation, and housing.
Inflation erodes the purchasing power of income and investments.
As prices increase, the purchasing power of a dollar declines. Like compounded interest , inflation grows exponentially. A depository account with an adjustable interest rate feature to reflect increases in inflation . An individual may receive a lump sum of money and need to consider various investment opportunities. In each of these cases, the amount is assumed to be taxable income for the year in which it is received.