How to check if your retirement savings are on track
The useful question isn't how big your balance will be. It is how much yearly income it can pay, in dollars that buy what dollars buy today.
A big future number can mislead because of inflation. This estimate converts everything to today's dollars, then asks how much your balance could pay each year until a chosen age.
The steps
1
Project your balance
Grow today's savings with your yearly contributions (rising with prices) at an assumed return until retirement.
2
Convert to today's dollars
Divide by (1 + inflation) for each year to retirement.
3
Spread it over retirement
Use the real return in retirement (return adjusted for inflation) over the years you plan to fund, to find a steady yearly income.
4
Compare with the income you want
The gap shows how much more you would need to save.
Worked example
A 35-year-old with $80,000 saved, $12,000 added each year, a 6.5% return until 67 and 4.5% after, 2.5% inflation, planning to age 90 reaches about $2,190,000 or $993,600 in today's dollars. That pays about $52,997 a year in today's dollars, against a goal of $60,000. Closing the gap takes about $2,185 a year more, rising with prices.
💡 Pro Tip: This leaves out the Age Pension, tax, fees and spending that changes with age. Many people also spend less as they get older. Use it to compare scenarios, not to predict your future.
✨ Key Takeaways
Think in today's dollars, not future dollars.
Yearly income matters more than the balance.
The result is very sensitive to the return and the age you plan to.
Speak to a licensed adviser about your own situation.
