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Today’s dollars express future amounts in current purchasing power. To convert a future balance, divide it by the cumulative inflation factor; to estimate a future cost, multiply today’s cost by that factor. A retirement plan becomes misleading when it mixes a future nominal balance with today’s spending without adjustment. Keep contributions, returns, fees and withdrawals on a consistent basis, then test the drawdown as a cash-flow problem rather than treating a large future balance as proof of affordability.
A million dollars in the future is not a million dollars of today’s spending
Assume inflation averages a constant 3% for an illustrative 20 years. The cumulative price factor is 1.03 to the power of 20, or about 1.8061. A future $1 million then has roughly $553,676 of today’s purchasing power. Conversely, a lifestyle costing $48,000 today would cost about $86,693 a year after those 20 years under the same assumption.
Neither number predicts inflation. The example simply puts a future balance and a current budget onto comparable terms. The RBA explains inflation as the rate at which the prices of goods and services increase, with CPI measuring changes across a household basket.
Your actual spending may behave differently from the average basket. Rent, health needs, insurance and family circumstances can change independently. Use a general inflation scenario for consistency, then separately consider costs whose amount or timing you already know is changing.
Choose one language for the whole projection
A nominal projection uses the dollars expected at each future date. A real projection expresses amounts in the purchasing power of a chosen base date. Both can be useful. The problem arises when the return belongs to one system and the spending to the other.
For example, a 6% nominal return with 3% inflation corresponds to a real return of 1.06 divided by 1.03, minus one: about 2.91%. Simply subtracting gives a nearby approximation of 3%, but it is not the exact compound conversion.
If a model uses nominal returns and automatically increases spending with inflation, do not reduce the return for inflation again. If it uses real returns and constant real spending, do not also escalate that spending for general inflation. Find the calculator’s method before interpreting the result. A double adjustment can make a sound scenario appear dramatically worse.
A growing account can still be losing purchasing power
Suppose a fictional account rises from $200,000 to $206,000 over a year after relevant costs, while the chosen price level rises by 4%. The nominal gain is 3%. Its real end value in starting-year dollars is $206,000 divided by 1.04, or about $198,077. The displayed account is larger, but its purchasing power is lower.
That distinction matters when judging progress towards retirement. Comparing balances from different years without an inflation adjustment can confuse saving, market growth and price changes. It can also make a fixed dollar target look permanently sufficient when living costs have moved.
Do not interpret every real decline as a need to change investments immediately. The calculation describes one part of the experience. The relevant response depends on the time horizon, upcoming spending and the wider plan.
Drawdown is a sequence of cash flows, not one final target
Consider a fictional $500,000 portfolio and an initial $30,000 annual withdrawal. If withdrawals rise by a constant 3%, the next two amounts are $30,900 and $31,827. A model withdrawing the same nominal $30,000 every year describes declining purchasing power, not the same lifestyle.
Timing also matters. Taking $30,000 at the start of the year leaves less money invested than taking it at the end. Monthly withdrawals produce a different path again. Check which timing a calculator assumes before comparing results from two websites.
An account balance at age 65 is only the start of that drawdown problem. You still need to consider the length of retirement, uneven returns, fees, tax and spending changes. MoneySmart’s retirement guidance treats budgeting and income sources as ongoing decisions rather than a one-off target that solves every future year.
Fees must be counted once and described accurately
If an assumed investment return is already after investment fees, subtracting the same fee again understates the outcome. If it is before fees, ignoring them overstates it. Administration charges, insurance deductions and advice costs may not all fit into one simple percentage.
Suppose one scenario assumes $300,000 grows for 20 years at 6% with no further contributions. Another assumes 5% to represent a simplified one-percentage-point annual drag. Their future values are about $962,141 and $795,989. The gap is about $166,151. It includes both the direct drag and the growth no longer earned on that money.
That gap is not a statement that $166,151 was handed to an adviser in cash. The scenario deliberately simplifies the fee mechanism. A useful comparison separates actual charges from the resulting difference in future balances and checks that returns, taxes and other assumptions remain equal.
Source: MoneySmart: superannuation calculator, assumptions and fees
Model life stages rather than one unchanging household
Housing, work and family costs may change in steps. A mortgage may end, a child may leave home, a partner may stop work later or a health cost may begin. These changes cannot be represented accurately by applying the same inflation rate to one spending number forever.
Make a simple timeline. For each stage, write the spending expressed in today’s dollars, income sources and any one-off amount. A fictional $18,000 vehicle replacement every nine years is not the same as a regular $2,000 yearly payment if the account lacks cash when the purchase arrives.
Treat the annual allocation and actual payment calendar as separate views. The allocation helps compare affordability; the calendar checks whether money is available at the relevant date. This is especially useful for a bridge before super access, when a large expense may arrive just before another source of money becomes available.
A real balance does not remove market or access risk
Inflation adjustment makes numbers comparable; it does not make them certain. A constant real return remains a constant-return assumption. Actual gains and losses can arrive in a different order, affecting outcomes when withdrawals continue.
Money inside super may also be unavailable for an early spending need. Keep accessible balances separate from preserved super, even if both are shown in today’s dollars. A household with adequate combined assets can still run short before a release condition is met.
Where an account-based pension is involved, minimum payment rules may apply independently of the household’s preferred real budget. A required withdrawal is not the same as an instruction to spend the whole amount. Ask how the account choice, tax and other income interact in your circumstances.
Use Elaris with a written assumptions card
Write down the base date for today’s dollars, the inflation assumption, whether the return is before or after tax and fees, the spending method and the assumed super access date. Add one-off expenses and costs the model omits. This card makes later comparisons much easier to interpret.
The Freedom Clock can help you see how selected assumptions affect a work-optional scenario. Its smooth projection does not predict a precise retirement date, model every market sequence or assess a household’s tax and benefit position. Treat the date as an output to investigate rather than a promise.
Run one change at a time first. After understanding each effect, combine lower returns with higher spending and review the fallback. A useful result is not merely a number you like; it is a scenario whose inputs and limits you can explain.
Use the same base date when sharing a result
Two people can both say they need $60,000 a year while referring to different purchasing power. If one budget uses October 2026 prices and another uses a much earlier year, the amounts are not directly comparable. Put the base date beside the annual spending figure.
When saving or sharing a scenario, keep the assumptions with it. A screenshot showing only a future freedom date loses the inflation method, costs and withdrawal definition that produced it. A short assumptions note helps your future self understand whether an apparent change came from saving more, changing the budget or simply moving the base date.
FAQ: Should I subtract inflation from the return?
Only if the model needs a real return and has not already made that adjustment. The exact conversion is one plus the nominal return divided by one plus inflation, then minus one. Check how fees and tax are treated before applying the formula.
FAQ: Is 3% the inflation rate I should expect?
In this article it is an illustrative assumption, not a forecast or a guarantee. Test more than one rate and consider the household expenses that may move differently. The most recently published CPI figure is not a prediction for every year of retirement.
FAQ: Why do two retirement calculators disagree?
They may use different return bases, inflation assumptions, withdrawal timing, fees, tax, pension assumptions or longevity horizons. Compare their methods and inputs before deciding one is wrong. A more precise-looking number does not necessarily describe more of your circumstances.
FAQ: How often should I update a real spending budget?
Set a regular review and revisit it after a major change in housing, health, income or family commitments. Use actual bills to replace old estimates. Updating the budget is a practical check on the assumptions, not a reason to react to every short-term market movement.
Put the next step into practice
Use your own confirmed figures and keep outstanding questions visible. Core tools are free, with no bank connection or compulsory account.
Open the Freedom Clock ↗Sources and editorial notes
Sources checked 23 October 2026. Worked examples are fictional illustrations. Rules, eligibility and product terms can change; use the official source for your circumstances.
- RBA: inflation and its measurement ↗
- MoneySmart: make your money last in retirement ↗
- MoneySmart: superannuation calculator, assumptions and fees ↗
- MoneySmart: account-based pensions ↗
General information, not an individual financial or legal assessment. AI-assisted drafting with source checks; independent professional review has not been completed. How we prepare our guides · Suggest a correction