Retirement goals may be distorted by money illusion

A columnist who set a goal of reaching £1m by age 60 found a strong 2025 gain reduced the nominal return needed, but realised they had not adjusted for inflation and that the real value target is higher.

A columnist set a target for their portfolio to reach £1m by age 60 after the account had hit half that amount. A 24% gain in 2025 lowered the nominal annual return needed from about 9% to roughly 6%. The writer then recognised they had not adjusted the goal for inflation, which reduces the purchasing power of a nominal million pounds. Key points: - The original target required about a 9% nominal annual return; a strong 2025 return cut that to around 6% nominal. - Adjusting for inflation restores a higher real target; with inflation near 3% the writer would again need about a 9% nominal return to match 2024 purchasing power. - Some FTSE 100 companies mentioned yield around 6% or more, cited examples include Legal & General and Land Securities. - A long-dated UK gilt maturing in December 2049 was noted as offering about a 5% running yield and is trading about £12 below par, which could give a capital gain if held to maturity. - Higher-yield bond ETFs and credit funds are available, with some emerging-market bond ETFs yielding about 9% and corporate credit funds around 7%; these funds have country exposures including Uruguay, Indonesia, South Africa and the Dominican Republic. - The writer notes concerns about volatility in credit markets, mentions historical patterns in US high-yield spreads around recessions, and expresses caution about relying on high credit yields. Summary: The writer is rethinking a nominal £1m retirement goal after recognising the impact of inflation on real purchasing power. They are weighing higher-yield fixed-income options, emerging-market bonds and corporate credit, and are considering opening a broader brokerage account to access more asset types; the next concrete step is undecided but the author says more on this may follow next week.