— Explainer

The retirement number you’re solving for.

Nominal is what your statement says. Real is what your statement buys. The gap is inflation, compounded over decades.

— Why the two numbers diverge

Your 401(k) statement shows you a single number. That number is nominal. It is the count of dollars, not the basket of goods those dollars will buy when you actually spend them. A 7% return on paper with 3% inflation is roughly 3.88% of real growth, not 4%, because the two compound against each other instead of subtracting cleanly.

Most retirement calculators quietly report only the nominal number. It looks bigger. It is bigger. It also buys less than the statement implies, and the gap grows every year. This tool shows both numbers side by side so you can see what you are actually solving for.

— Inputs

Your retirement math

Uses the exact Fisher equation, not the subtraction approximation.

— At retirement

Nominal balance

$1,356,858

what the statement will say

Real balance (today’s dollars)

$648,043

what it will actually buy

— What it actually costs

You need an extra $273,444 today to break even against inflation.

That is the additional starting capital required so your real balance at retirement matches the nominal number you are probably already anchored on. If you cannot add it up front, the alternatives are the usual three: save more each year, accept a higher-risk allocation, or retire later. There is no fourth option the brokerage app is hiding from you.

What inflation ate

$708,815

over 25 years

Inflation assumption

3.00%

per year, compounded

Return assumption

7.00%

nominal, per year, compounded

Knowing the real endpoint is step one. Step two is the drawdown: once you stop earning, how long does the balance last, and does it survive a bad sequence of returns? The retirement drawdown calculator runs Bear, Base, and Bull side by side so you can see which worlds your plan actually survives.

— Why the statement lies to you politely

Your 401(k) balance is a number of dollars. It is not a basket of groceries, a mortgage payment, or a decade of healthcare.

The industry has trained everyone to watch the nominal balance. Quarterly statements, dashboards, the little green triangle next to year-to-date return. All of it is dollars-on-paper. None of it is purchasing power. In a world with zero inflation that distinction would be academic. We do not live in that world. We live in one where the Fed explicitly targets 2% inflation every year, and sometimes overshoots, and the compounding of that target across a thirty-year career is not a rounding error.

The Fisher equation gives you the exact translation. Take the nominal return, divide by one-plus-inflation, subtract one, and you have the real return. That is the number you can actually spend. The math is not hard. It is just hidden, because the nominal number is more flattering and the brokerage industry would prefer you feel good about your progress.

The practical consequence is that your retirement target is not a fixed dollar amount. It is a fixed amount of purchasing power, and the dollar figure attached to it grows every year you postpone retirement. A plan built around the nominal target plants you squarely in the set of retirees who thought they had enough and find out at age seventy-two that they did not.

Once you have the real endpoint, the next question is whether that balance survives a thirty-year drawdown with inflation-adjusted withdrawals. The retirement drawdown calculator runs Bear, Base, and Bull scenarios side by side and flags the worlds where the plan runs out early.

— FAQ

Inflation and retirement, answered.

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