Inflation Has Been Above 2% for Five Years. Is Your Retirement Number Still Right?

The Federal Reserve has now held inflation above its own 2% target for five consecutive years. Not briefly above. Not trending toward it. Stuck — and according to Chicago Fed President Austan Goolsbee, the last three months have actually been going in the wrong direction.

The FOMC voted in late April to hold rates at 3.5% to 3.75% for the third consecutive meeting. Markets have priced in no changes for the rest of 2026 and well into 2027. Kevin Warsh takes over as Fed Chair this week with what observers are calling a "regime change" mandate — but with March CPI running at 3.3% annually and core PCE at 3.0%, selling rate cuts to a divided committee will be hard. Some regional presidents have already started signaling the next move could be a hike, not a cut.

None of that is your immediate problem. Your immediate problem is simpler: most retirement projections were built with assumptions that no longer match the world.

Nominal vs. Real: Where Retirement Plans Lose Ground

When a financial calculator asks for your "expected annual return," most people type in 6%, 7%, maybe 8%. Those are nominal numbers — the raw return before inflation takes its share.

Real return is what matters. It's the nominal return minus the inflation rate. That gap is where the plan starts losing ground.

Here's the math. A 7% nominal return with 2% inflation gives you a 5% real return. Fine for planning. But 7% nominal with 3.3% inflation gives you 3.7% real. Same investment, same contributions, different world. The gap in the final balance is not small.

According to U.S. Bank's asset management research, something that cost $1 at the start of 2000 cost $1.93 by 2026. Prices nearly doubled in 26 years — an average of around 2.5% annually. We've been running hotter than that since 2021, with no clear path back to 2%.

The St. Louis Fed's own research confirms inflation has been persistently above the 2% target since March 2021. In 2025, it came in at 2.9%. In early 2026, PCE sits at 2.8% to 3.0% and CPI at 3.3% — and the most recent trend is up, not down.

What It Does to Your Number

Take a 40-year-old with $120,000 saved, contributing $800 per month, targeting retirement at age 65. Run that scenario in the Retirement Calculator twice.

First run: 7% nominal return. That's the assumption most people carry, inherited from decades of "stocks return 7% on average" guidance.

Second run: 4.5% real return. That's roughly where you land if inflation stays between 2.5% and 3% over the next 25 years — a conservative reading of where we are today.

The difference between those two scenarios runs to hundreds of thousands of dollars. Not because anything changed about the investment. Because the assumption changed. The number on your brokerage statement is not the number you get to spend.

The Compounding Problem

The damage compounds.

In year one, a 3.3% inflation assumption instead of 2% costs you less than $2,000 in real purchasing power on a $100,000 balance. That sounds survivable. By year 25, the accumulated erosion is significant enough to change whether you can retire when you planned to at all.

The Compound Interest Calculator can make this visible. Model your current balance and contribution rate twice — once with the nominal return your account shows, once with that number reduced by 3.3% for inflation. The second number is what you'll actually be able to buy. Most people have never run that second scenario. It's not a comfortable number, but it's an honest one.

Brent Schutte, chief investment officer at Northwestern Mutual, noted after the April FOMC meeting that inflation has been stuck at 3% or above since the end of 2023. That's not recency bias. It's a data point about where we've been for over two years straight, with no progress in the most recent readings.

Recalibrate the Assumption

A retirement plan built on 7% nominal returns and 2% inflation was reasonable in 2019. It needs recalibrating in 2026. Not a panic — a recalculation. Plug in numbers that reflect where things actually stand and see what the plan says back.

Go run your number in the Retirement Calculator. Enter your real balance, your real contribution, your real target retirement age. Try both assumptions: 7% nominal versus 4.5% to 5% real. The gap between those two outputs is the conversation you should be having with yourself.

If the lower assumption still gets you to your target, you're in good shape. If it doesn't, you have time to adjust. Contribute more, work a few extra years, or rethink the withdrawal rate. What you can't do is adjust something you never measured.

The Fed will figure out inflation eventually. Until then, your retirement math should not assume it already has.