How this retirement calculator works
It answers two questions: how much you're likely to have when you retire, and how much you'll need.
- Projected savings. Your current savings and monthly contributions grow at your expected return until your retirement age.
- Savings needed. Take the yearly income you want, subtract Social Security and any pension, and work out the pot that can pay the difference every month until the age you plan for, while the rest stays invested.
Everything is shown in today's dollars by subtracting inflation from returns. That way "$60,000 a year" means what $60,000 buys now, and the calculator assumes you raise your contributions with inflation each year.
Example
A 35-year-old with $50,000 saved, putting away $800 a month and earning 7% a year, would have about $768,000 by 65 in today's money (around $1.6 million in future dollars, at 2.5% inflation). To draw $60,000 a year with $20,000 from Social Security until age 90, they'd need about $752,000. They're on track: the savings could provide roughly $60,800 a year including Social Security.
How much income will you need?
A common starting point is 70–80% of your pre-retirement income, since you'll no longer be saving for retirement or paying payroll taxes, and your mortgage may be paid off. Healthcare often costs more, though, so build in a margin. For an estimate of your own Social Security benefit, create an account at ssa.gov.
The 4% rule
A popular shortcut says you can withdraw about 4% of your savings in the first year of retirement and raise it with inflation, with a good chance of the money lasting 30 years. In other words, you need about 25 times the yearly income your savings must provide. For $40,000 a year, that's $1 million. This calculator's method is similar but uses your own return and timeline.
If you're behind
- Get the full employer match. It's an instant return on your money.
- Raise contributions with each pay rise, even by 1% of salary a year.
- Use catch-up contributions from age 50, which let you put extra into a 401(k) and IRA.
- Work a little longer. Two or three extra years mean more saving, more growth and fewer years to fund, and delaying Social Security increases your benefit.