Retirement Calculator Tips For Best Results
A retirement calculator is a valuable tool when used properly, but can dangerously mislead you when used improperly.
The best retirement calculators allow you to model your financial plan by varying input assumptions and then projecting those assumptions into the future. You can include projected income sources, growth of retirement savings, as well as model the sale of substantial assets such as a business or real estate to see how it affects savings growth and income over time.
In other words, retirement calculators make the math of long-term financial modelling easy. That is their redeeming feature. You can put real numbers behind your future plans to decide both how much money you need to retire and if you are saving enough to reach the goal.
Without a retirement calculator the math would be too complicated for all but the most dedicated spreadsheet junkies.
Social Security Information You Can See Online
When you sign in to your online account, you’ll be able to view your Social Security statements. If you don’t yet receive benefits, you’ll see an estimate of the amount you could receive when you do retire.
There’s a table that shows your monthly benefit amounts if you retire — for instance, if you were born in 1960 or later, your chart may show retirement at 62 years old , 67 years old and 70 years old . Note that these retirement ages may change in the future. The longer you wait to retire, the more money you could receive per month.
You can also see your eligibility and earnings information. If you’ve worked at least 10 years, you’ll have enough work credits — you need 40 — to receive benefits. If you click on Review your Earnings Record, you’ll see your taxed Social Security and Medicare earnings for each year you worked.
Estimate Your Retirement Budget
This retirement calculator starts with a monthly spending budget of 70% of your current gross income. In other words, if you earn $100,000 per year, the calculator assumes youll spend about $70,000 per year in retirement. To get your monthly budget, it divides that amount by 12.
Its a reasonable place to start, but there are a lot of other factors to consider. For example:
- If retirement is still many years away, your income today probably doesnt reflect what it will be when you retire.
- If you expect to downsize in your retirement, this could significantly reduce your spending, making it easier to reach your retirement savings goals.
- Paying off your mortgage is a huge life event that will reduce your spending each month by eliminating your mortgage payment.
- Traveling in retirement can be expensive, depending on how and where you expect to travel. This and other lifestyle choices can change that estimated budget a lot.
Still, before you reduce yourself to a bare-bones budget trying to make future ends meet, work through the other factors below. There are a lot of other ways to make your retirement picture look brighter.
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Do You Have Enough Money To Retire Now
Our Retirement Savings Calculator can help you answer that question, which depends on a number of different factors, including your current age, how much you have already saved for retirement and how many years of retirement income you think you’ll need in the future. If are considering an early retirement, you will want to think about how your pension and Social Security will be affected. If you have a pension with your employer, when are you eligible to start receiving it? Will it be a lump sum payment, a monthly pension amount or both? You may begin receiving Social Security benefits as early as age 62 or as late as age 70. Keep in mind, however, that if you retire early, your benefits are reduced by a certain percentage for each month before your full retirement age.
Our Financial Education articles can offer you additional financial tips about Social Security, taxes, health care and more to help you determine how much money you need to retire at age 50, age 55, age 60, age 62 and age 65.
Consider A Financial Adviser
Want some extra help planning for retirement? A financial adviser may be able to help you organize your retirement savings plan, determine how much you can comfortably save and make investment decisions. As you approach retirement age, your financial planner can help you set a budget and make recommendations based on the income you can expect in retirement.
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Pensions And Retirement Planning
Though defined benefit plans are now widely going extinct, its possible that your company offers one. If they do so, you need to find out how much you will receive as a pension during retirement.
This affects your retirement planning because pensions reduce the amount youll need to lean on from retirement savings and Social Security benefits. For example, if you need $80,000 annual income during retirement and you are expecting a pension payment of $20,000, it means you only need to get $60,000 from both retirement savings and Social Security benefits.
Add From $250 To $500 Per Month
Need to find a little more? Up to $500 extra per month? Combine the methods above, and consider adding some of these:
- Switch to a less expensive insurance provider
- Pay down debt to free up that monthly payment
- Save up ahead for vacations and holidays to avoid credit card interest
- Cancel any subscriptions youre willing to give up
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State Income Tax Rate
For the last field, enter the current marginal state income tax rate you expect to pay.
Every state has a different income tax. For a high tax state like California or Oregon, this will be a high number, and it will take a sizable bite from your 401k withdrawal. If you live in a no-income tax state such as Florida, Wyoming, or Washington, you can enter zero.
How To Use The Aarp Retirement Calculator
Retirement planning. Its a phrase that sends many people into a panic, especially if theyre approaching retirement without enough savings. At cocktail parties, you might joke about working until you drop. Thats not a realistic option, and certainly not a good way to spend your retirement. Youve worked hard your entire life. Youve earned the right to retire in comfort. But how much do you need to do so? Many people approaching retirement can only answer with a vague number, or a lot, or more than I have.
The AARP retirement calculator helps you determine exactly how much you need, and how best to reach your goals. Read on for more information on successful retirement savings plans and how to best use the retirement calculator.
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Income And Percent Of Income To Save
Deciding what percentage of your annual income to save for retirement is one of the big decisions you need to make when planning. If youre just starting out on your retirement planning journey, saving any amount is a great way to begin. Just keep in mind that youll need to keep increasing your contributions as you grow older.
So how much is enough? Financial services giant Fidelity suggests you should be saving at least 15% of your pre-tax salary for retirement. Many financial advisors recommend a similar rate for retirement planning purposes.
But even then, the 15% rule of thumb assumes that you begin saving early. It also assumes youd be comfortable replacing 55% to 80% of your pre-retirement income. If you start later or expect youll need to replace more than those percentages, you may want to contribute a greater percentage of your income.
When Should I Retire
It depends. The AARP Retirement Calculator will help you decide. If you plan on retiring early, however, you’ll need a lot of money. In most cases, you cant tap tax-deferred retirement plans without a 10 percent penalty until the year you turn 59 ½. You cant get Medicare until youre 65, and your money will have to last much longer than someone who retires at that age. Here are other factors to consider:
Social Security
Although you can start collecting this benefit at 62, it will be reduced unless you retire at full retirement age, which is 67 for those born in 1960 or later. Your benefit increases by 8 percent each year you delay taking the benefit after full retirement age, until you turn age 70.
Social Security benefits are adjusted annually for inflation. Thats a big plus and one that makes waiting to collect worthwhile. Nevertheless, if youre in poor health or have large savings, the time off from work may be worth missing the extra money from the Social Security Administration . You can use the AARP Retirement Calculator and the AARP Social Security Calculator to see how much you would get from Social Security by retiring at different ages.
Health
You may be planning to retire at 70, but your body may have other ideas. And if you decide to retire before 65, be sure to include the cost of private health insurance in your calculations.
Taxes
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Assumptions Required To Estimate How Much Money You Need To Retire
All retirement calculators require the same basic inputs to work their magic your retirement age, life expectancy, inflation, investment return, portfolio size, and expected retirement expenses. These are the required assumptions, and every calculator must have these inputs. No exceptions allowed because the math requires these inputs.
The fundamental problem is many of these required assumptions are tantamount to forecasting the future, which is impossible. Unless you have a crystal ball or can read goat entrails, then the future is unknowable. It cannot be predicted with sufficient reliability to bet your financial future on.
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The industry standard approach for dealing with these unknowable assumptions is to apply historical average estimates. The implication is the past is indicative of the future. For example, the historical average inflation rate in the United States has approximated 3% so most experts recommend using 3% for your future inflation projection.
Similarly, consider the life expectancy assumption. Nobody can know when they are going to die. The whole idea is ridiculous.
How Much Social Security Will You Get When You Retire
The amount of your Social Security benefit is a function of your full retirement age. If you were born in 1960 or after, your normal retirement age when you are eligible to receive full or unreduced Social Security benefits is 67. When you choose to retire is central to your retirement planning strategy because it activates your various streams of retirement income: drawing upon Social Security and your pension, if you have one, as well as beginning withdrawals from your other retirement accounts, such as your 401 or IRA, and other possible income sources like annuities. With the right planning, you may be able to retire early and depend on alternative sources of retirement income until you reach your normal retirement age, at which point you can start collecting your full Social Security benefits. You also can increase your Social Security benefit amount by waiting beyond your full retirement age to retire. However, the benefit increase stops when you reach age 70. Access my Social Security Retirement Calculator to learn more.
Our Retirement Savings Calculator gives you the option of including your Social Security benefits in its calculations to determine if you have enough funds to retire. Discover how early retirement can affect your Social Security benefits and the truth behind some common Social Security myths.
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Want To Boost Your Score Here’s How
Here are some ways to boost your retirement readiness whether youre behind on your goals or are on track but maybe want to retire a little earlier.
“My score needs attention.”
An individual retirement account is one of the most popular ways to save for retirement given its large tax advantages. You can put in up to $6,000 a year. And if you’re 50 or older, you can contribute an additional $1,000 a year. » Learn more about IRAs
“On my way, but I could close the gap.”
The annual limit for 401 contributions is $20,500 in 2022 . Its wise to at least contribute up to the point where youre getting all of the matching dollars your employer might offer. » See about increasing your 401 contributions
“I’m on track, but I want to do more.”
A good advisor can help you understand complex issues, diagnose potential problems and take steps to plan for the future. And theyre not as expensive as you might think. » Learn how to choose a financial advisor
How To Use The Retirement Calculator
Our retirement savings calculator is easy to use, and provides straightforward results to help you maximize your saving efforts.
Heres how to use it:
- Enter your current age
- Add the age at which you hope to retire: The average age of retirement is 62. If you plan on working longer, youll have more time to save. If you plan on retiring younger, you may decide to contribute more to your retirement savings each month.
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How To Use Credit Karmas Retirement Calculator
Figuring out how much you can save for retirement doesnt have to be a guessing game. Our retirement calculator can help you estimate how much money you may be able to save by the time youre ready to stop working. Plus, it can help you see how your nest egg could grow over time, and how much money you may have for your expenses in retirement.
Keep in mind that the results of this calculator are only an estimate and are based on the information you provide. The calculator doesnt consider certain factors that can influence your retirement savings, such as other forms of income like Social Security, pensions or other investment income. And it doesnt factor in things that could impact your income, such as inflation, a change in career or job loss.
To use the calculator, youll need to answer a few questions, like
Start by entering your current age.
Their Estimates Are Rough But Here Are Some Guidelines
How much income will you need in retirement? Are you on track? A retirement calculator, used correctly, could help you get a rough idea. Two we like are AARP’s and T. Rowe Price’s retirement calculators because they can accommodate couples, not just individuals. With some retirement calculators, you may have to override built-in assumptions. Here are guidelines:
Inflation. Input 3 or 3.5 percent. Pessimistic? Use 4 or 5 percent.
Investment returns. Past performance is not predictive, and your allocations will shift over time. Historical, average annual returns of 9.6 percent for stocks and 5 percent for bonds mean that a mix of 60 percent stocks and 40 percent bonds would return 7.8 percent. But to play it safe, we suggest estimating lower: for a 60/40 mix, 5 or 6 percent.
Retirement income. You won’t commute, fund a 401, or owe FICA taxes, but you’re likely to spend on leisure early in retirement. Later, you’ll spend more on health care. So where the retirement calculator asks for retirement income, go with 85 percent of expected final annual income.
Social Security benefits. Get a free estimate from the Social Security Administration. For claiming strategies that may yield more, use Financial Engines’ free Social Security planner or pay a service such as Social Security Choices or Maximize My Social Security, $40 each.
Rate of asset withdrawal. Theories vary, but 4 percent annually is a good starting point.
Editor’s Note:
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What Is Financial Independence
Financial independence is another word for retirement, assuming that retirement means that you no longer require income from work to support yourself.
FIRE is a movement around living efficiently and achieving financial independence essentially another word for retirement. Adherents live frugally and save as much as possible so they can gain more control over their lives.
How To Use The High
If you joined between Sept. 8, 1980, and July 31, 1986, you can use the High-3 Calculator to figure out your estimated base pay. This retirement plan offers a pension after 20 years of service that equals 2.5% of your average basic pay for your three highest-paid years or 36 months, for each year you serve. Thats why the plan is sometimes called the High-36.
For example, retiring with 20 years of service means that your retirement pension will be 50% of that highest 36-month pay average. Waiting to leave after 40 years will make your pension 100% of your monthly pay average.
You may also receive additional payments from your Thrift Savings Plan, if you have chosen to contribute.
Heres how to use the High-3 calculator to see your total projected retirement payments.
Remember: your highest 36 months of basic pay determines your eventual pension rate. So, the calculator asks what you think your pay grade may be every year to your projected separation year.
If youre not sure, the system automatically fills in each years possible pay grade following a typical military career progression. You can simply continue from this step, or you can override the calculators suggestions with the drop-down menu.
The High-3 calculator shows your estimated retirement benefits in three different tabs.
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