Retirement / Evergreen
The price of your future lifestyle.
Learn why a future balance and today's purchasing power are different.
Nominal amounts describe the number on the statement. Real amounts describe what that number can buy.
The same amount buys something different
Inflation describes an increase in the general price level. If prices rise while income stays fixed, purchasing power falls. Your own spending basket may change differently from a national average, especially when housing, healthcare, or energy make up a large share.
Make the assumption visible
Suppose a lifestyle costs 2,000 currency units a month today. At a constant hypothetical inflation rate of 3% per year, the same basket would cost about 3,612 in 20 years: 2,000 multiplied by 1.03 to the power of 20. This is a mathematical scenario, not a forecast or a statement about any country's future inflation.
Keep comparisons consistent
A projected account balance expressed in future money should not be compared directly with spending expressed in today's money. Either move spending forward using an explicit inflation assumption or convert the future balance back into today's purchasing power. The same time basis makes the comparison meaningful.
Returns also have a real side
With a hypothetical 5% nominal annual return and 3% inflation, the real return is approximately 1.94%: 1.05 divided by 1.03, minus one. Fees and taxes can reduce the result further. The figures describe a simplified relationship; real-world returns and inflation do not move at constant rates.
A global perspective
Inflation, currencies, and pension adjustments differ across countries. Exchange-rate changes add another uncertainty when future spending is in a different currency.
Sources & further reading
OECD — Pensions at a Glance 2023: inflation and pensions ↗Sources checked Oct 15, 2026. Examples are original illustrations. No affiliation with cited organizations.
Make the idea stick.
Mark complete when you are ready. Reaching the end alone does not mark a lesson complete.
What assumption in this guide would change the result in a different situation? Revisit the example and explain that change in your own words.
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