Keep nominal and real values separate
Nominal dollars are the amounts shown in the future; real dollars describe purchasing power relative to a base year. Mixing a nominal balance with today's spending creates an overstated plan.
Inflate spending over the full horizon
Inflation matters before and during retirement. A plan may need to increase withdrawals over time even if the retiree buys the same basket of goods.
Use categories and scenarios
Healthcare, housing, and food may not match one headline inflation rate. Test a central assumption and a higher-inflation case rather than expecting one rate every year.
Example: future cost of today's spending
$4,000 of monthly spending inflated at 3% for 20 years becomes about $7,224 per month in future dollars. The lifestyle is similar; the number of dollars required is larger.
What to check before you decide
- One inflation rate cannot represent every household category.
- Constant-rate models hide year-to-year volatility.
Sources behind this guide
These official and primary sources let you verify rules, definitions, and terms that may change.
Investor.gov — Understanding inflation risk↗U.S. Department of Labor — Retirement planning↗