INSIGHTS

Why retirement targets should use today’s dollars

A practical explanation from Nest Invest AU. General information only.

By Nest Invest AU · Updated 14 September 2026

Define the lifestyle before choosing a target

Retirement planning starts with the spending you want your resources to support. A single headline savings target can be difficult to interpret without knowing the household, housing position, retirement date and period it needs to cover. Begin with your current spending, then consider which costs might continue, disappear or change. The aim is not to predict every expense perfectly. It is to build a scenario whose assumptions are clear enough to question and update as your plans become more specific.

Describe a normal year before adding occasional costs. Housing, food, transport and recurring bills form one part of the picture; replacing a vehicle, helping family or making a major home repair may require separate allowances. Avoid assuming that every working expense disappears or that every retirement year has identical needs. If your partner plans to retire at a different time, note that explicitly. A household can move through several income stages rather than switching overnight from employment to a single retirement arrangement.

Understand today's dollars and future dollars

An amount expressed in today's dollars describes purchasing power at the starting date. A future-dollar amount includes the assumed effect of price changes over time. Comparing one with the other can create confusion. For example, at an illustrative inflation assumption of 2.5% a year, a $60,000 annual spending amount would be about $76,805 in ten years. The calculation is $60,000 multiplied by 1.025 ten times. It is a mathematical illustration, not a forecast of inflation or your future expenses.

The Nest Invest AU retirement calculator displays balances and cash flows in today's dollars. It converts the entered nominal net return to a real return using the relationship shown in its methodology. If the nominal return is 5% and inflation is 2.5%, the real return is approximately 2.44%, rather than exactly 2.5%. Consistent treatment matters: you should not inflate your spending manually and then enter it into a field that already expects today's purchasing power.

Keep assets and income separate

The current-assets field is for resources you intend to use to support retirement. An asset balance and income produced by spending down that same balance should not be counted as two independent resources. The other-income field is intended for income outside the assets already included. If you are unsure whether a source belongs in one field or another, pause and clarify it before relying on the result. A larger output produced by double counting does not represent a stronger position.

The calculator combines assets for an illustration; it does not determine when each asset is accessible or what selling it would cost. Money inside super, cash savings and an investment property can have very different access conditions. The family home should not be included as available retirement funding unless a separate, properly assessed plan explains how value would actually be released. Record any expected selling costs or other deductions when estimating resources, since the calculator does not automatically assess those transactions.

Test a simple scenario before a complex one

Start with an example you can check without trusting a chart. Suppose a fictional person has $200,000, contributes a net $18,000 each year for 25 years, and assumes zero returns and zero inflation. Projected assets are $650,000: the original $200,000 plus $450,000 of contributions. If retirement then requires $40,000 annually for 30 years with no other income or returns, the illustrative target is $1.2 million. The difference is $550,000 before considering any unmodelled factors.

This deliberately simplified example is not a forecast or a recommended target. It shows why inputs, contribution timing and the length of retirement matter. With returns added, contributions made at the start of a year have longer to grow than contributions made at its end. Similarly, taking retirement income at the start of a year differs from waiting until year end. The selected rules are displayed beside the calculator's limitations so that the numbers can be interpreted in context.

Change one assumption at a time

Save or print a baseline scenario, then change one variable. You might adjust retirement age, annual spending, contributions or returns. Changing everything together makes it difficult to understand which assumption caused the difference. Use the results as a discussion aid: which changes are within your control, which are uncertain, and which would involve a lifestyle trade-off? A calculator can make those relationships visible, but it cannot decide which trade-off is appropriate for you.

Test less favourable outcomes as well as the outcome you hope to achieve. A constant-return model does not reproduce the uneven order in which real investment returns arrive. Nor does it automatically model a period of reduced contributions, an unexpected expense or a changed household structure. If your plan only appears workable under one optimistic combination, that is a useful question to raise in a consultation rather than a reason to select that combination as the answer.

Use the result to prepare better questions

A projected shortfall is an estimate under a selected scenario, not a finding that you cannot retire. A projected surplus is equally not a guarantee. Ask which important elements are excluded: access to super, possible government benefits, tax, required pension withdrawals, insurance, debt and one-off spending can all need separate assessment. The model is intentionally transparent about these limits so that a smooth chart is not mistaken for a complete retirement strategy.

Before a consultation, note your intended retirement timing, spending estimate, resources and the assumptions you tested. You can view results without signing up. If you later submit an enquiry, the optional sharing checkbox allows you to include the calculator inputs and summary. Leave it unticked if you do not want those figures included. The retirement-planning service page provides the next step for discussing your questions, with any personal financial advice subject to the appropriate assessment and authorisation.