Project retirement savings over a career.
Retirement projections are dominated by compounding over the length of a career, which is why the growth component typically exceeds the contributions on a horizon beyond about twenty years. The inflation-adjusted figure matters just as much as the headline: a projected balance that looks large in nominal terms buys considerably less after twenty-five years of even modest inflation.
Compounded retirement projection
Each year balance = balance x (1 + return) + annual contribution; growth = final balance - total contributed; real value = final / 1.02^years
Illustrative projection only, not financial advice or a guarantee of returns. Actual outcomes depend on market performance, fees, tax treatment and contribution changes. Seek regulated financial advice for retirement planning.
Four to six percent nominal for a diversified portfolio is a common planning assumption. Using historical equity returns of nine or ten percent produces projections that look excellent and are rarely realised net of fees and sequencing risk.
Because a nominal figure is misleading over decades. At 2 percent inflation, money loses about 39 percent of its purchasing power over 25 years, so the real figure is what tells you what the balance will actually buy.
Enormously. A contribution made 25 years before retirement at 5 percent grows 3.4 times; the same amount made 10 years out grows 1.6 times. The first decade of contributions typically produces more of the final balance than the last two.