How Today’s Savings Become Tomorrow’s Portfolio
Part 4 of a five-part series on the math behind your savings number. Parts 2–3 found the target; this one is about the path — and the inflation bridge that turns today’s number into the one you’ll actually retire on.
The short answer. Part 2 and Part 3 gave a $150,000 earner a retirement target of about $1.73 million in today’s dollars. But you don’t retire today. At 2% inflation over 30 years, that same purchasing power costs about $3.14 million in actual dollars at age 65. For a 35-year-old who already has $100,000 saved, the math says it takes roughly $2,600 a month (rising with inflation) at a 3% real return to get there. This post shows where each of those numbers comes from.
This is part 4 of a five-part series. Each part stands alone; together they walk from “what’s the goal?” through “how much do you need?” to “what will you do with the time once you have it?”
Why isn’t $1.73 million the number I’ll actually need?
I was recently driving through Montreal with a friend who sold his company last year and was talking about what he wants to do next. Then he asked the question I see online all the time: what’s your retirement number? I didn’t even tell him that I was in the middle of writing a series of articles on this exact subject. He named a number and then I asked him if that’s in today’s dollars. Inflation and investment returns…oh yeah! This is particularly critical now as everything has gotten so much more expensive since covid, so let’s make sure we’re getting this right. In parts 2 and 3 of this series, we ran through an example of a person who would need $1.73 million to maintain their desired spending for a 30-year retirement…but here’s the next step…because $1.73 million is measured in today’s purchasing power. It’s the answer to “how much would I need if I retired today.” That framing keeps the math clean and lets you compare the target against your current salary and spending. But it isn’t the balance your account statement will show on the day you retire.
We’re not finished working through this yet…after you read Part 2, you can write down the number that comes out of the calculator on my website, and start saving toward it as if it were the finish line. However, you still have to invest it because it’s the finish line in today’s money. To turn it into the number you’ll actually need, you need to adjust it going forward by your assumed inflation rate for the number of years between now and your expected retirement age:
Nominal target = real target × (1 + inflation)years
At 2% inflation over 30 years (assuming it’s a 35-year-old planning to retire at 65), that multiplier is about 1.81:
$1.73 million × 1.81 ≈ $3.14 million
That $3.14 million isn’t a richer retirement. It’s the identical retirement. It’s the same groceries, trips, and heating bills, but now it’s priced in 2056 dollars instead of 2026 dollars. The extra $1.4 million is pure inflation, not extra comfort. This is the single most common source of confusion in retirement planning: people anchor on the today’s-dollars number and quietly under-target by three decades of inflation.
Real return vs. nominal return: what’s the difference?
A nominal return is the headline number you see quoted — say, 6% a year. A real return is what’s left after you strip out inflation and investment fees; it’s the growth in actual purchasing power. On YouGotThis we start from the nominal figure you’d see on paper (about 6%) and subtract roughly 2% for long-run inflation and 1% for fees, leaving a 3% real return — the same assumption Parts 2 and 3 used.
There are two honest ways to run the projection, and the only rule is that you can’t mix them:
- Work in today’s dollars (real). Keep the $1.73 million target and use the 3% real return. Everything stays in today’s purchasing power.
- Work in actual future dollars (nominal). Inflate the target to $3.14 million and use a nominal return.
Done consistently, the two give the identical answer about whether you’re on track. The classic error is saving toward the small ($1.73M) real target while projecting growth at the big (6%) headline rate — that compares a real target to a nominal projection and makes people think they’re far ahead when they’re merely on track. The rest of this post works in today’s dollars, because it’s easier to reason about. Just remember the bridge: whatever real number you land on, the statement at 65 reads about 1.8 times larger.
What’s the formula for getting from here to the target?
The target math in Part 2 was a present value — discounting a future spending stream back to one number. The path runs the other direction. It’s a future value (FV), and it has two pieces:
Portfolio at retirement = (what you already have, compounded forward) + (each year’s contribution, compounded forward)
Written out:
FV = P0 × (1 + r)n + PMT × [ (1 + r)n − 1 ] / r
Where P0 is your current balance, PMT is your annual contribution, r is your real return, and n is years to retirement. The first term is your existing savings growing on their own. The second is the future value of an annuity, which is your annual contributions compounding for however many years it has left. That means the dollar you invest this year works for three decades while the dollar you invest at 64 works for one. That second piece is the whole game, and it’s why when you start matters more than almost anything else.
How much should I save each month to retire at 65?
Take the household from Parts 2 and 3: 35 years old, aiming for $1.73 million in today’s dollars by 65, assuming a 3% real return, with $100,000 already saved.
That existing $100,000, compounded at 3% real for 30 years, becomes about $243,000 on its own, without adding a cent. That leaves roughly $1.49 million to come from contributions. Back-solving the annuity formula, the contribution that gets there is about $31,300 a year, or roughly $2,600 a month, in today’s dollars.
A note on “in today’s dollars”: that $2,600 means you raise it with inflation each year — about $2,650 next year, and so on — so it stays constant in real terms. Freeze it at $2,600 forever and its real value erodes, and you fall short. (Same real-vs-nominal discipline as above, applied to the cheque you write.)
Here’s the part worth sitting with. Over 30 years this household contributes about $1.04 million of their own money. The portfolio finishes at $1.73 million. The other $693,000 — about 40% of the finish line — is growth they never deposited. It’s compounding doing roughly four-tenths of the work, and almost all of it comes from the early contributions, because those are the only ones that get the full 30 years.
Starting to get overwhelmed? No worries — I’ve got you covered. You can run your own numbers with the free retirement calculator — this is the first part. If you would like to go into as much detail as we are talking about here but don’t want to spend a lot of time doing it, start free.
What does it cost to wait?
Compounding rewards time so steeply that the contribution needed for the same target is wildly non-linear in when you start. Same $1.73 million target, same 3% real return, starting from nothing:
| Start at | Years to 65 | Required per month (today’s $) |
|---|---|---|
| 25 | 40 | $1,900 |
| 35 | 30 | $3,000 |
| 45 | 20 | $5,400 |
| 55 | 10 | $12,600 |
Look at what a decade costs. The 25-year-old needs about $1,900 a month. Wait until 45 and the same goal needs $5,400 — not double, nearly triple. Wait until 55 and it’s $12,600, which for most people simply isn’t reachable. The line doesn’t bend gently; it goes vertical.
This inverts how the salary-multiple rules frame things. Those rules imply you can check a box at each age and catch up later. The math says the early years are the cheap ones, and they don’t come back. A 25-year-old saving $1,900 a month and a 45-year-old saving $5,400 a month land in the same place — but the younger saver contributes far less in total and lets compounding cover the difference.
So is starting early more important than picking better investments?
For most people, yes — and that’s the reassuring part. The highest-leverage move isn’t shaving fees or chasing a hotter fund, it’s starting with whatever you can. In our previous example, the same household with $100,000 already saved needs about $2,600 a month. If they are starting from zero, it’s about $3,000. Having money to start obviously helps, but the years help more.
It also means the return assumption (the input people obsess over) is the junior partner, exactly as Part 3 argued. Run the same household at 2%, 3%, and 4% real and the required contribution moves from about $3,200 to $2,600 to $2,100 a month. Real money, but a fraction of what starting ten years earlier does. You don’t control your return. You do control when you start and how much you put away.
Where this leaves you
Part 2 gave you the target. Part 3 told you which assumptions are worth arguing with. This post gives you the two bridges: the inflation bridge from today’s dollars to the real number on your future statement, and the contribution path from where you are now to where you’re going.
The math isn’t that hard although I know it’s confusing at first. It’s a present value to find the target, a future value to find the path, and an inflation adjustment so the two speak the same language. The arithmetic was never the hard part. What it can’t tell you is the subject of Part 5: you’ve worked out the number and the path to it; the harder question is what all of it is for.
Frequently asked questions
How much do I need to retire in Canada if I’m 35?
For a $150,000 earner planning to spend about $112,500 a year and retire at 65, the math points to roughly $1.73 million in today’s dollars, assuming a 3% real return and about $24,000 a year from CPP and OAS. In actual age-65 dollars, that’s near $3.14 million.
Why is my future retirement number bigger than the one in today’s dollars?
Inflation. A target stated in today’s dollars has to be inflated forward to the year you retire. At 2% inflation over 30 years, prices roughly multiply by 1.81, so a $1.73 million target today becomes about $3.14 million at 65. It’s the same purchasing power, more dollars.
What’s the difference between a real and a nominal return?
A nominal return is the headline figure you see quoted, like 6%. A real return is what remains after subtracting inflation and fees — about 3% in these examples. Real returns measure growth in actual purchasing power, which is what retirement spending depends on.
Should I use 6% or 3% in my retirement projection?
Either works, as long as you’re consistent. Use the 6% nominal return only against an inflation-adjusted (nominal) target; use the 3% real return against a today’s-dollars target. Mixing them, so a 6% projection against a today’s-dollars target, will overstate how on-track you are.
Does starting early really change the result that much?
Substantially. For the same $1.73 million target at a 3% real return, starting from zero, a 25-year-old needs about $1,900 a month, a 45-year-old about $5,400, and a 55-year-old about $12,600. A ten-year delay nearly doubles the required contribution, because early dollars compound longest.
Run your own numbers. Plug in your age, your current savings, and what you’re putting away, and see the path to your number — in the dollars you’ll actually retire on.
See your full picture — investments, debt, retirement, education, estate — in one view, free.
Get started free →Educational illustration only. Not financial, investment, tax, or legal advice. The figures use a simplified model — steady real return, contributions level in real terms, no taxes or contribution-room limits modelled — and are meant to build intuition, not to size any individual’s strategy. CPP (the Canada Pension Plan) and OAS (Old Age Security) amounts are 2026 maximums, less estimated OAS clawback.