Though many, if not all, of the inputs will be self explanatory at a basic level, we suggest that you review the below information. There are various details which we point out that are important to understand.
Your current age — or the age you plan to start saving/investing.
Your life expectancy — your retirement funds have to last for your life expectancy minus your retirement age plus one (to fund your last year of retirement). Currently, a male living in the US who is 20 years old has a life expectancy of 77 years and a female can expect to live to be 81 years. Of course, feel free to change these numbers are you see fit. Or you may wish to use the US Social Security Administration's life expectancy table.
Annual income — expected annual income at the time you start saving for retirement. If you have already started investing then enter your current income.
Annual income increase — assume your income will go up over the years. Enter the annual average increase that you expect. If you want to allow for inflation, then enter an amount LESS the average annual rate of inflation that you expect. For example, if you expect to get a 3% raise a year and you expect inflation to average 2% a year, then enter 1% since 2% is going to be eaten up by the inpact of inflation.
Percent of income invested — enter the percent of income that you plan to save for your retirement fund. Generally speaking, the older you are, the higher the percentage will have to be for you to reach your retirement income goal.
Current retirement fund — if you have already started saving, enter the total amount in your retirement account.
Return on investments — your expected, annualized average return on your investments. If you were to put your money in a standard saving account (not necessarily a good idea), then this would be the annual interest rate paid on the account. In the past, stocks have averaged about 10% a year when dividends are reinvested. However, for the past ten years or so, stocks have not even come close to providing this kind of return. Regardless, you want to enter what rate of return you think you will earn on your money averaged out over time.
Your age at retirement — the are you want to retire.
ROI for retirement fund — Your rate of return on your investments after you retire. You could use the same percentage as you use for "return on investments" however, normally after one retires they invest their money in assets that are more conservative and that generates a lower rate of return.
Annual inflation rate — If you want to increase your retirement income, then enter an estimated inflation rate. Your income will increase by this amount.
Annual income required — what is the total annual income you expect to need on the day you retire?
Other annual income — if you expect income from other sources besides your retirement saving and government social security or pensions enter the annual amount. For example, if you expect a pension from an employer, enter the annual pension amount. This amount and social security will be deducted from "annual income required" to calculate the amount of income your retirement fund will have to support.
Expected income from gov't — if you expect social security income or a government pension enter the annual amount. This amount plus any income from other sources will be deducted from "annual income required" to calculate the amount of income retirement your savings will have to generate.
As you make your way through life there are very few things you can do, from a personal finance perspective, that are more important than planning and saving for retirement. Our Retirement Planning Calculator helps you do just that. This calculator analyzes your current financial situation and saving and evaluates your goals and charts the future so you can see if you are on track to meet your goals.
Suggested reading: see our blog entry "Rich Man, Poor Man".
This calculator easily allows you to ask "what-if?". What-if, I increase my savings from 5% of my gross salary to 8% of my salary? What-if, I think I'm going to need $50,000 dollars a year in income after I retire rather than $40,000? How long will my retirement funds last then? What-if inflation averages 4.0% a year after I retire instead of 2%? The number of scenarios you can evaluate is nearly unlimited.
On the other hand, rather than calculating what-ifs, you might want to state specific goals and have a calculator tell you what you have to do to achieve those goals. If that is the case, then give our Goal Planning Calculator a try. This calculator solves for many unknowns while helping you plan for retirement, college educations or other large, future financial obligation. Naturally, in addition to solving for unknown values, it will let you do what-if calculations as well.
Click on the calculator's "Help" button for details about each input.
Click on the below plans and the calculator's data will change and the chart will be updated. The point is to show three slightly different sets of inputs and how generally small changes can have a significant impact on the results.
Retirement Plan 1 — Even starting at age 35 and saving 5% of income with a 3% increase every year, the savings plan will not allow the user to have a comfortable retirement for their life expectancy. Notice at retirement (age 65), the retirement funds immediately start to deplete as indicated by the red bars.
Retirement Plan 2 — If the user follows this plan, the retirement funds immediately start to deplete, but they will not run out. There was one change made to this plan when compared to plan one. The user settled for 12.5% less retirement income.
Retirement Plan 3 — This plan has the best results. Notice the funds available continue to increase even after contributions have stopped and the user is retired. This is indicated by the slightly darker green bars at retirement age and beyond. The only reason the retirement funds start to deplete later in retirement is due to the inflation adjustment applied to the withdrawals. (See for yourself. Set the "annual inflation rate" to zero and you'll see that the funds continue to grow. [After you make the change, click on the "Calc" button of course.])
Place your mouse over a bar for details about the data at any age. Notice the yellow line shows the contributions and the blue line shows the withdrawals. Again, if you put your mouse on a point on one of the lines, you'll see the specifics.