How a Projection Works

The year-by-year engine

In brief: A retirement projection simulates your finances one year at a time. Each year, the model processes your income, spending, tax, and investment growth, then carries the result forward. The output is a trajectory showing how your finances evolve from today until the end of the projection.

A retirement projection is not a single calculation. It's a simulation that runs year by year, from today until the end of your chosen timeframe — typically your life expectancy or beyond.

Each simulated year follows the same sequence:

1. Income is totalled — salary, pension income, State Pension, rental income, and any other income sources that are active in that year
2. Tax is calculated — based on your combined income from all sources, applying the relevant UK tax bands and allowances
3. Spending is subtracted — your living costs, expressed in today's money
4. The balance is assessed — if income after tax doesn't cover spending, the shortfall is withdrawn from your assets in the order you've specified
5. Assets are grown — remaining balances in pensions, ISAs, and investment accounts grow at the rate you've assumed, minus any fees
6. The result carries forward — the closing balances become the opening balances for the next year

This cycle repeats for every year of the projection. The output is a year-by-year table and chart showing your total assets over time.

What makes each year different

Although the engine follows the same steps every year, your circumstances change:

• Life events start and stop — you might retire at 60, start drawing your State Pension at 67, downsize your property at 75, and face care costs at 85. Each of these events changes the cash flowing in or out for that year.
• Tax changes with income — in your working years, your salary might push you into higher rate tax. In early retirement, you might have very little taxable income. When your State Pension starts, it adds to the total and can push pension drawdown into a higher band.
• Assets deplete or grow — if you're drawing down a pension, the pot shrinks each year (partially offset by investment growth). If you're still accumulating, it grows.

The projection captures all of these interactions. That's what makes it more useful than a back-of-envelope calculation.

The role of assumptions

Every projection depends on assumptions — values you choose that represent your expectations about the future. The key assumptions are:

• Investment growth rate — how fast your assets grow each year in real terms (after inflation). A common illustrative range is 0% to 6%, depending on your investment mix and the growth rate you choose to model.
• Inflation rate — how fast prices rise. This is used to convert nominal rates (e.g. from pension providers) into real terms. It does not directly inflate spending — all figures are already in today's money.
• Fee rate — the annual cost of holding your investments (platform fees plus fund fees). Fees are subtracted from your growth rate, so they directly reduce the return on your assets.

These assumptions interact: a 4% real growth rate with 0.5% fees gives you roughly 3.5% real growth per year. Change any one of them and the trajectory shifts. Because everything is in today's money, the projected numbers represent actual purchasing power — what you could buy with that amount today.

Why two people get different results

Two people with identical savings can get very different projections. The difference comes down to their assumptions and life events:

• When you retire — retiring at 58 instead of 65 means 7 extra years of spending without employment income and 7 fewer years of accumulation
• How much you spend — a difference of a few thousand pounds a year compounds significantly over a 30-year retirement
• Your income sources — a large DB pension provides stable, inflation-linked income that reduces pressure on your investment pot. Without one, you're more reliant on drawdown.
• Your assumed growth rate — the difference between 4% and 6% growth over 25 years is enormous in absolute terms

This is exactly why modelling matters. The interactions between these factors are too complex to hold in your head. A year-by-year simulation lets you see the combined effect.

It's not a prediction

A projection shows what would happen if your assumptions hold. It doesn't predict the future. Markets don't return a steady percentage every year. Inflation varies. Tax rules change. Life expectancy is uncertain.

The value of a projection is not in the specific numbers it produces, but in the shape of the trajectory and the sensitivity to your assumptions. If your projection shows assets lasting throughout the modelled period even under lower-growth assumptions, that is informative. If it shows your assets running out at age 78 under central assumptions, that is equally informative. Different scenario assumptions can be compared to explore the range of outcomes.

These projections are for modelling purposes only. They do not constitute financial advice. Tax rules are subject to change. Please consult a qualified financial adviser before making financial decisions.