After you have determined how much money you will need at retirement and how much money will be available to you from outside resources, the next step is to determine the inflation-adjusted shortfall, or how much additional money you will need for retirement after the effects of inflation have been accounted for. To calculate the annual inflation-adjusted shortfall, subtract the amount you expect to receive from Social Security, qualified retirement plans, individual retirement plans, and small-business retirement plans from the total annual amount you will need for retirement. Once you know your inflation-adjusted shortfall, the next step is to figure out how much money you will need to fund that shortfall each year.

You are now ready to calculate the total amount you will need to have invested by retirement in order to receive the necessary annual payment (or, in other words, the inflation-adjusted shortfall).

Use a financial calculator or spreadsheet to solve this problem. Set your payment (PMT) equal to the needed annual payment, or the inflation-adjusted shortfall; set N equal to the number of years you will be in retirement; and set the interest rate equal to your real return rate. Then solve for the present value. The result of this equation will be the amount of money that you will need to have invested by the time you retire in order to receive your needed annual payments. Once you retire, you will either live off the returns generated by your investments or use the money you have invested to purchase an annuity from a financial institution to receive your needed monthly amount.