How Much Money Do You Need For Retirement
Arriving at an answer to this question may not be immediately obvious because it depends on several variables related to your retirement objectives. Do you envision your retirement lifestyle costing more or less than what you spend now? If you want to increase the amount of domestic or international travel you enjoy during retirement, you will likely need additional money for these adventures. However, if you want to move into a smaller house or condo to simplify your life after you retire, you may not need as much money on an annual basis as you do now.
It can be helpful to imagine what your expected expenses in retirement might be and develop a retirement budget to estimate the level of income you think you’ll need. Remember to include unexpected costs like taking care of elderly parents, special destination weddings, inflation and potential investment losses. After you have a rough estimate of your retirement budget, you can more accurately determine the percentage of income replacement at retirement, one of the assumptions in our Retirement Savings Calculator. Depending on your situation, a scaled-down lifestyle may need only 80% of your current income, whereas opening an antique store as a brand new business venture could bump that up to 150%.
The Results: Pessimistic To Optimistic
Retirement modeling can be a tricky proposition. Each calculator has a different set of inputs and makes a different set of assumptions. Even the simplest scenarios require modifications or adjustments to match the inputs of a given calculator. Beware that this is nowhere near a precise science.
In an effort to ensure consistent results, I ran the new scenario in each calculator twice, on two separate days. Then I reviewed the results again, with some expert help, on a third day.
So here are the results from each calculator, in order from the most pessimistic to the most optimistic, with relevant notes:
|Optimistic: fixed rate of return.|
Whats the bottom line? Is this couple on track to retire?
The two most pessimistic calculators for this scenario the Flexible Retirement Planner and FIRECalc show success rates of only 66% and 70% respectively. Most experts recommend that you aim for a success rate of at least 80%-90% in retirement planning.
The T. Rowe Price Retirement Income Calculator incorporates fixed values for inflation and Social Security that are more optimistic than specified in our scenario.
The two most optimistic calculators the Ultimate Retirement Calculator and SmartMoney Retirement Planner do not incorporate a probabilistic analysis, and thus may be overlooking the effects of market volatility.
New Retirements Simple Retirement Calculator
New Retirements Simple Retirement Calculator is as advertised: simple. Although it lacks the fancy design or graphics, this calculator gives you a quick assessment of your current retirement savings, showing how long your money will last in retirement at a set level of spending in retirement.
Additionally, the New Retirement Planner contains a number of resources for retirement planning. Once you create a profile and enter information about your financial goals, youll be given suggestions. Results are provided in a format that is goals-focused, with a timeline showing how close you are from exiting the workforce within your specified time horizon. There are also suggestions for next steps in addition to a thorough analysis of your retirement situation. The overall flow and interface of the website, and inputting the information, makes the experience more user friendly for a person with basic retirement and investment knowledge.
The Planner allows you to input the value of your home and other assets while also incorporating debt, annuities, medical expenses, net worth, and estate planning. One thing I really liked was alternating from optimistic and pessimistic rates of returns on your investments and savings accounts, providing a truly holistic understanding of various investment scenarios.
You May Like: What Happens To Your 401k When You Retire
Charles Schwab Retirement Calculator
One of my favorite aspects of the Charles Schwab Retirement Savings Calculator is the expanded social security benefits section. The calculator asks for you to include your expectations about social security benefits, which may not be the largest stream of retirement income for an individual, but nonetheless contributes to your nest egg. The calculator lets you choose what age you will start social security. You can enter in a number manually or ask the software to calculate and give you an estimation.
Another feature I like about this calculator is choosing your investment style rather than a straight rate of return. Changing your risk profile demonstrates how your portfolio may be structured and what rate of return you can expect. It is important to review the How this tool works link to understand the long-term return estimates being used for the five investment styles with defined risk profiles from Conservative to Moderate to Aggressive.
The 3 Best Free Retirement Calculators
Retirement calculators have an impossible job. They use various imperfect mathematical techniques in an attempt to predict the distant future. That cant be done reliably. So they will inevitably be wrong.
Add to that the difficulties in communicating the many variables involved, and all the possible simulation options, to everyday users with limited time. And then there are the usual issues with designing friendly software, getting the bugs out, and then delivering it to work reliably on dozens of different hardware/software platforms across the web.
In the years leading up to that retirement, plus the last couple years of blogging, Ive evaluated 34 different retirement calculators! And, Ive kept extensive notes on each.
For this post I went back through those notes and picked the top half-dozen or so free calculators to re-evaluate in depth. Of those, three made my final cut, as worthy of recommendation to you. And Ill unveil them shortly, below. But first lets develop a retirement scenario, and then talk a little about choosing and using retirement calculators.
Don’t Miss: Health Insurance Between Retirement And Medicare
Think About These Concerns Before Using A Retirement Calculator For Couples
Before sitting down to do a retirement calculator, you might want to first discuss your goals for retirement.
My husband and I were recently at a dinner party. The conversation turned to thinking about the future. I announced that I intend to buy a small resort on a tropical island for retirement. He laughed and declared that we would be spending too much on airfare and maintaining two households since he is planning to move to a small town in Colorado or Idaho.
The good news is that we are now trying out both scenarios in the retirement planner and discussing the pros and cons of each option.
Bonus: Net Worth Tracker
Whether your goal is to retire at 35 or 75, tracking your net worth can keep you organized and speed your progress. Indeed, tracking your net worth is a powerful way to stay aware of your financial standing, making it easier to prepare for retirement.
It can also help you make smarter money decisions for your long-term financial health.
Read more about tracking your net worth with Tiller
You May Like: Retired Indiana Public Employees Association
The Retirement Calculator For Married Couples
Retirement planning is complicated. Retirement planning when you are married or part of any kind of committed couple is doubly complicated. If you are married, you need to use a retirement calculator for married couples, or a retirement calculator for couples.
When you are part of a couple, there are double the financial considerations. Furthermore, your values and priorities may diverge and this all plays a big part in your retirement planning. If you are attempting to plan your retirement online and you are a married couple or a couple who are planning your retirement together, it is very important that you find a retirement calculator that enables you to account for each of you as individuals and then calculate it all together.
Here are tips for finding and using a retirement calculator for married couples or any couple.
Couples Retirement Planning Spreadsheet
Couples choose to manage their individual and combined finances in many different ways, most having individual savings accounts and investments acquired from an assortment of jobs. Understanding the financial contribution that both parties are bringing to retirement can be tricky. This spreadsheet is designed to help.
Note that this spreadsheet is configured in British Pounds, but you can change the currency in Google Sheets.
Keep A Clear View Of Your Money In 2022
Looking for a more powerful personal finance tool? Tiller automatically imports your daily spending and balances into spreadsheets, so you can track everything in one place, with everything customizable, flexible templates, and no ads. Free trial!
Following a budget can help you save more for retirement and reach your long-term financial goals. Learn about Tillers Foundation Template.
Bankrate Retirement Calculator Review
With the Bankrate Retirement Income Calculator, you input savings, estimate your rate of return and tax rate, your age, and the number of years you think you’ll spend in retirement, as well as inflation. It projects your monthly income from your savings in retirement before and after inflation and taxes. It also reports when you will run out of savings, and provides a yearly cash-flow analysis.
Overall Score: Poor, scoring 1.6 out of 3
Don’t Miss: Universal Life Insurance As A Retirement Plan
Retirement Planning Spreadsheet For Google Sheets
The flexible and easy-to-use Retirement Planner spreadsheet estimates the value of your savings and investments into the future. Experiment with growth rate scenarios and project outcomes in real-time.
Note: Because its powered by Tiller, this is the only automated spreadsheet template on the list it automatically pulls in your daily spending, balances, and transactions to show exactly where you stand each day.
Learn more about the Retirement Planner Spreadsheet
Best Free Retirement Planning Spreadsheets For 2022
- OnAugust 11, 2021
Preparing your retirement takes careful planning that begins years in advance. A spreadsheet is a perfect tool for the job.
With a retirement spreadsheet, you can easily input your own numbers and experiment with different savings, investment growth, and withdrawal rate scenarios. This will provide an accurate picture of what your retirement might look like. It can also help you see where to make changes today to get where you want to be in the future.
Spreadsheets are also the one financial planning tool you will never outgrow. You can start using one today to budget, pay down debt, and track your net worth. And then in your post-retirement years, you can customize your spreadsheet with a budget that helps you optimize spending and protect your nest egg.
Also Check: Retirement Homes In Evanston Il
The Best Retirement Calculators
As American workers began to shoulder more of the responsibility for funding their retirement, retirement calculators proliferated across the Internet. A Google search for online retirement calculator garners tens of thousands of hits. People are anxious about their retirement readiness, concerned about whether they will have enough money to last through their lifetime.
Are You Single Or Married How To Answer The Marital Status Question On A Retirement Calculator For Couples
Whether you are you single or married is a common question asked by retirement calculators. If you encounter this question, and you are planning your retirement with a partner, but you are not married, go ahead and answer married.
If it is a sophisticated calculator that covers taxes, then you might need to take results with a grain of salt, but most of the results should work whether or not you are actually married or just committed.
You May Like: T Rowe Price Retirement Planner
My Methodology For Testing Calculators
To test the calculators fairly, I felt the need to be consistent with our information. For our purposes were going to ignore both social security and pension plans, but I do make note of the ones that offer the ability to do so. Not all plans allowed us to input the below information, as some calculators make a few general assumptions, but here is what I used:
- Current Income: $100,0000 annually
- Starting balance of retirement plan: $10,000
- Annual Contributions: $10,000 or 10%
- Current Age: 35
- Age of Retirement: 65
- Years of Retirement: 30
- Rate of Return before Retirement: 7%
- Rate of Return during Retirement: 5%
- Income Need at Retirement: 80% of Current Income
- Inflation Rate: 3%
Tax Calculations In Retirement
Another problem with traditional retirement calculators is that they often do not give you an accurate picture of what your after-tax retirement income will be. It is likely you will pay taxes in retirement, and the amount you pay will depend on many factors that most retirement calculators miss.
Although a retirement calculator is a good start, it may be best to meet with an experienced retirement planner to help you develop a customized plan that fits your individual situation.
Don’t Miss: Is Life Insurance Good For Retirement Planning
T Rowe Price Retirement Income Calculator
The T. Rowe Price Retirement Income Calculator has been widely lauded for its strong emphasis on income planning, enabling you to project your monthly retirement income based on various planning scenarios. For each scenario, it projects your monthly shortfall, if any, and shows the likelihood of your savings lasting throughout your retirement. It then offers options for making up potential shortfalls.
You can compare scenarios side by side while changing the variables and assumptions to see their effect. It also has a built-in Monte Carlo simulation tool to help you see how your retirement savings will fare in various market conditions. The major drawback is that it calculates only one retirement age at a time. If you and a spouse plan to retire at different points, you would need to run two separate calculations.
For the level of sophistication this tool employs, the presentation is straightforward. The interview process is somewhat involved, but there is plenty of pop-up support along the way. You can expect to spend up to 20 minutes inputting data if you have all of your financial information at hand.
Diy Rough Back Of A Napkin Calculator
In the archives, I wrote about how to quickly calculate what you need for retirement:
Work out a budget of expected expenses during retirement. Dont forget to include income taxes, albeit reduced, as an expense. Calculate how much the Government will provide you during your retirement years. You can use the Canadian government calculator here. The difference between 1 and 2 is how much income from savings that you will need. Take the number calculated in step 3, and multiply by 25. That is the amount you will need to have saved . If you have other sources of income, like from company pensions or rental properties, then reduce step 3 by the other income amounts, then multiply by 25.
This quick calculation is really for traditional retirement age where government programs can really pay for a significant portion of your retirement needs. Once you calculate your number, you can figure out how much you need to save today with the following table:
Monthly Savings Required to Reach Your Number
Required Savings $1095 $846
This is obviously a very quick and rough calculation. If you want the down and dirty details, you can read them in my article retiring early in Canada and discover that you may not need as much as you think.
You May Like: Retire At 62 What About Health Insurance
Ultimate Retirement Calculator Terms And Definitions:
- Retirement age: Age at which a person is required to step down. Usually referred to as mandatory retirement age. Can also be used to describe a standard age where most people retire such as age 65 in the United States.
- Retirement benefits: A monthly payment and other benefits such as health care for a person who has reached retirement age.
- Pension: An arrangement to pay a person a regular income when they are no longer earning by actually working
- Government pension: An arrangement of support given by some government to its senior citizens.
- Life expectancy: The average period that a person is expected to live.
- Desired annual retirement income: The amount that a retired person wishes to have as household income
- Desired estate: The amount of estate a retired person wishes to leave to his loved ones
What Information Will You Need
Before you start playing around with these calculators, make sure you have some information ready. What information do you need to use most retirement calculators? To start, some information you will need includes:
- Current annual income
- Annual retirement contributions
- Amount set aside for retirement already
Note: For all of our testing with the calculators, we used the example data above with a 30-year-old.
Unfortunately, in some situations, you have to start with information you cant possibly know, like how long you will live and what your expenses will be in 10, 20, or 30+ years. How can anyone know that?!
If youre like me and dont know all these numbers off the top of your head, take time to gather the information you need before you start calculating. You want to make sure you get the most accurate possible number.
Also, be prepared to spend a little time with each calculator, playing with the numbers that you have control over.
If you increase your annual contribution or push back your retirement by a couple of years, how does that change your retirement number? Playing with numbers can help you get a better sense of how much control you have over your retirement.
Recommended Reading: What Happens To Retirement Funds In Divorce