One of the things I do that allows me to really get into investments, budgeting, saving money, is spreadsheeting it all out and forcasting the returns I might reap based on a given set of assumptions. While the accuracy is only as good as the set of assumptions (i.e. ROM at best), it does allow one to visualize the long term impact of saving that extra $20 a week now.

Right or wrong, I usually set as my goal to "match my yearly income" via either the yearly assumed ROR or the "yield" from an income producing security, with a assumed level of fat built in.

To do this, I need some sort of gauge as to what my income might be at retirement in "actual dollars."

Usually to do this, I do a BasePay*(1+Inflation+Raises)^N where Inflation is any yearly COLA style adjustments (as a decimal) I assume, Raises is any yearly merit based or promotion style adjustments I assume (as a decimal), and N is the years since BasePay. I then usually impose a blanket maximum that is largely arbitrary. I don't see this as accurate as it is exponential until it suddenly maxs out.

I'm only 4 years into my career following college, and my salary increases certainly have not in anyway resembled this model. Extrapolating 35 more years into the future makes no sense.

Therefore, I am looking for advice on how to approach a spreadsheet style model of personal income from now until an arbitrary retirement age from those of you who are older and substantially further along in your careers, or do this sort of thing professionally.

I would like to account for:

  • Inflation
  • Salary increases
  • Probably salary maximums (i.e. how long in before one usually peaks and raises become COLA only)

About the only limitations I can think of are:

  • White collar, technical, private, non-union
  • Non executive track
  • Lower management and technical tracks carry wholly equivalent salary
  • (Senior person salary @ ~30 years / 0 experience grad) at least in my industry is roughly 2.7 to 3.0

3 Answers 3


Being the geek that I am, I actually developed a financial model of a few different career/salary scenarios when I graduated in 2000. While it may not matter from a financial POV, it's a nice thing to reference later on to help you stick with your financial goals.

My recommendation would be to not factor in inflation upfront... build a model based on the current value of money. You course-correct things in the future when inflation starts kicking in. Also, your retirement income requirements will vary dramatically depending on other decisions that you make. (ie. kids, mortgage, college, etc)

If achieving the lifestyle that you desire 10, 20, or 30 years down the road looks difficult because your salary isn't keeping up with your earnings/savings goals, you need to either re-evaluate your priorities or look for better compensation.

  • Is the financial model you developed accessible anywhere online, or something similar? Seems like a good resource.
    – justkt
    Commented Dec 22, 2010 at 17:26
  • @justkt - Not at the moment... let me see if I can genericize it and import into Google Docs. Commented Dec 22, 2010 at 22:42

If you set a savings amount now and leave it totally fixed you're likely to massively undershoot or overshoot. What is more likely is that you will adjust either your savings or your retirement expectations as things go along. If it turns out you have $10M (2010 dollars) at age 50 perhaps you'll retire early, and if you have $10k perhaps you'll buckle down and work much longer or save much more.

So I think what you are looking for is an assurance that if you budget to save x% of your salary over n years, and you get an after-inflation after-tax return of y% pa, you will eventually be able to retire on an income equivalent to z% of your working income. It's pretty easy to calculate that through a future-value formula.

rate * fv(rate, years, -contribution)

For instance, one set of values that works is saving 20% of income, 5% real return, 30 years = final income of 66% of working income. Or save half your income and within 14 years you can retire and keep spending the amount you were previously spending. Resist the temptation to crank up the assumed return until you get the value you want.

I think it would be great hubris to try to make this very precise. Yes, probably you will get raises, of course there are taxes to take into account (probably higher while you're saving), inflation and returns will vary from year to year, et. You can guess at them. But they'll change, and there are bigger things that are unpredictable: your personal life, your health, the economic future of your career or industry. I reckon this simple formula is about as good as you will get.


I'd forget raises, as they're hard to predict. Figure in cost of living adjustment to keep pace with inflation, and recalculate if you get a raise.

I don't think about it too hard. After I deposit my expected monthly expenditures in my checking account, the balance goes to savings, so any raises will go to savings unless I specifically alter my direct deposit settings. I have to make a conscious decision to inflate my lifestyle if I want to spend that money.

Also, realize that "matching your income" is a bit overkill. Right now, part of that income is going to savings. If you spend 60% of your income now, why would you suddenly need the extra 40% when you retire?

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