How the retirement calculator works
First it grows your savings to retirement, adding your monthly savings and earning your pre-retirement return. Then it works out the yearly income you still need after Social Security or a pension, raised for inflation, and how big a nest egg pays that every year until the age you plan to. Each year in retirement, the withdrawal rises with inflation and what's left earns the retirement return.
Example: at 35 with $50,000 saved and $800 a month, earning 7%, you'd have about $1,527,390 at 67, or $693,085 in today's dollars. Wanting $60,000 a year with $2,000 a month from Social Security leaves a $36,000 gap in today's dollars. Paying that until 90, rising with 2.5% inflation and earning 5%, needs $1,417,778, so you'd have a small surplus and the money would last to about age 92. Just $720 a month would be enough to stay on track.
Rules of thumb
- Income replacement: many people need 70% to 80% of their pre-retirement income, since work costs and retirement saving stop.
- The 4% rule: withdrawing about 4% of your savings in the first year, then raising it with inflation, has historically lasted about 30 years. It means saving roughly 25 times the yearly gap.
- Savings by age: one common benchmark is 1Γ your salary saved by 30, 3Γ by 40, 6Γ by 50 and 10Γ by 67.
Returns vary, and a bad stretch just before or after retiring matters most, so leave a margin. For a workplace plan with an employer match, use the 401(k) calculator.
Frequently asked questions
How much do I need to retire?
Enough to cover the gap between what you'll spend and what Social Security or a pension pays, for every year of retirement. A quick estimate is 25 times that yearly gap. A $36,000 gap needs about $900,000 in today's dollars.
What return should I assume?
Planners often use 6% to 7% a year before retirement for a stock-heavy portfolio and 4% to 5% in retirement as you shift toward bonds. Lower numbers give a more cautious plan.
Does this include Social Security?
Yes, if you enter it. Your estimated benefit is on your my Social Security account at ssa.gov. Enter it in today's dollars, since benefits rise with inflation.
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