The two-stage calculation
Retirement planning is two problems stacked. First: how much will you spend, in the money of the year you retire? Today's expenses inflated over the years remaining. At 6% inflation, spending doubles roughly every twelve years, so a thirty-year horizon multiplies it by close to six.
Second: how large a pot funds that spending for the rest of your life? This is an annuity calculation using the real return — your post-retirement return minus inflation — so the withdrawals keep their purchasing power rather than shrinking every year.
Why the real return is the number that matters
A 7% return with 6% inflation is not a 7% return. In purchasing-power terms it is about 0.94%. Plans that use nominal returns against inflated expenses overstate how long a corpus lasts, often by decades.
This is also why the gap between pre- and post-retirement return assumptions matters. Most people shift toward safer, lower-yielding assets at retirement, which is prudent but reduces the real return exactly when withdrawals begin.
Frequently asked questions
Why is the required corpus so large? +
Because it must survive decades of inflation while being drawn down. The number looks alarming in future money, but so will salaries and asset prices by then.
Does it include a pension or social security? +
No. If you expect guaranteed income in retirement, subtract its monthly value from your expenses before entering them.