How to Use the Retirement Calculator
Planning for your future requires precision and realistic expectations. This retirement calculator helps you estimate the size of your nest egg by the time you stop working. By adjusting your current savings, annual contributions, and expected market returns, you can visualize different financial scenarios and determine if you are on track for a comfortable retirement.
To get the most accurate projection, consider your current lifestyle costs and how they might change as you age. Follow these steps to input your data:
- Current Age & Retirement Age
- This defines your "accumulation phase." The more years you have until retirement, the more you can benefit from compound interest.
- Current Savings
- The total amount of liquid assets you currently have earmarked for retirement (e.g., 401k, IRA, brokerage accounts).
- Annual Contribution
- The total dollar amount you plan to save every year moving forward.
- Expected Return Rate
- The average annual growth rate of your investments. Historical stock market returns hover around 7-10%, while bonds typically offer lower returns.
How It Works: The Math Behind Your Nest Egg
The retirement calculator uses the Future Value (FV) of a series of payments and a lump sum. The most critical factor is the power of compounding. The formula used is:
FV = [P * (1 + r)^n] + [PMT * (((1 + r)^n – 1) / r)]
- P: Current Savings (Principal)
- r: Annual Interest Rate (adjusted for inflation if selected)
- n: Number of years until retirement
- PMT: Annual Contribution amount
- FV: Future Value of your retirement account
Calculation Example
Scenario: Sarah is 35 years old and wants to retire at 65. She has $100,000 saved and contributes $12,000 annually ($1,000/month). She expects a 7% annual return and wants to see the result adjusted for 3% inflation.
Step-by-step solution:
- Years to grow (n) = 65 – 35 = 30 years
- Real rate of return (r) = 7% – 3% = 4% (0.04)
- Lump sum growth = $100,000 * (1.04)^30 ≈ $324,339
- Contributions growth = $12,000 * [((1.04)^30 – 1) / 0.04] ≈ $673,025
- Total Projected Balance = $324,339 + $673,025 = $997,364
Common Questions
What is the 4% rule in retirement?
The 4% rule is a rule of thumb suggesting that you can safely withdraw 4% of your total retirement savings in the first year of retirement, and then adjust that amount for inflation every year thereafter, with a high probability of not running out of money for 30 years.
Should I adjust for inflation?
Yes. Because the cost of goods increases over time, $1 million today will have significantly less purchasing power in 30 years. Adjusting for inflation (typically around 3%) helps you see your future savings in "today's dollars," which makes it easier to plan your future budget.
How much do I really need to retire?
Most experts suggest aiming for 70% to 85% of your pre-retirement income. If you earn $100,000 now, you should aim for a retirement portfolio that can generate $70,000 to $85,000 in annual income, including Social Security and pensions.