What is a Retirement Calculator?

Retirement Calculator

For a working person, envisioning the golden years of retirement can be both easy and difficult. We may fantasize about international adventures or beachside escapes, but rarely do we financially lay the groundwork to make our retirement dreams a reality. Finally, there are more immediate concerns: jobs, kids, mortgage payments, car payments – the list goes on.

Amid this daily grind, it’s easy to put retirement savings on the back burner, especially when they’re 15, 20 or 30 years away. Indeed, surveys have repeatedly shown that the average American has very little retirement savings, and that a significant number of Americans in their 30s, 40s, and even 50s have no retirement savings at all.

Needless to say, the save-nothing approach is not recommended. At its best, retirement is a time when the stress of turning 65 (or so) subsides, leaving room for relaxation, fun, and grandchildren. If money is scarce, however, financial worries can crowd out this joy. Want to know how to retire comfortably? Start saving.

On the other hand, just as it’s foolish not to save at all, it’s unrealistic to try and save every penny that isn’t already devoted to paying bills or buying groceries. For most retirees, there are other sources of retirement income besides savings, chief among them Social Security. The general assumption is that Social Security and a less expensive lifestyle (no more kids at home, no more travel expenses) plus some savings will increase financial security in our sunset years. 

In other words, it is common to believe that if we save in good faith, things will work themselves out. For some, that may be true, but such success stories are more a result of good luck than a good retirement strategy.

That phrase – the right retirement strategy – is where many of us lose interest. It is loaded with negative connotations: expensive investment advisors, large stacks of documents and complicated spreadsheets, to name a few. But the right retirement savings plan doesn’t have to be complicated. It can be boiled down to a simple question: How much do I need to save to retire? By putting away a percentage of your income each month until you retire, you can eliminate the financial worries that many seniors find themselves facing. A retirement calculator can help.

How much money do I need to retire?

To understand exactly what it will take to retire comfortably, it’s important to consider what kind of lifestyle you expect to have during retirement. Do you hope to travel? Paris, or somewhere a little cheaper? How often do you like to eat out? Go to the cinema? The beach? Do you want to be closer to the beach? grandchildren? These questions may seem trivial now, but they can help give you an idea of ​​the income you will need in the future. 

If you’re ready to see the Eiffel Tower, the Pyramids at Giza, and the Taj Mahal, you’ll need a large nest egg to draw on. On the other hand, if you expect to live a low-key lifestyle, with much lower expenses than you currently have, you may not need to save as much.

The important thing is to be realistic. Don’t change your future by believing you can live off canned tuna and scrambled eggs. While some expenses will decrease in retirement, others may increase. Healthcare costs are likely to increase, especially in retirement. So it is best to have a cushion for unexpected expenses like that. Also, retirement is your reward for decades of hard work: treat yourself accordingly.

Saving for Retirement: Where Are You Now?

Whether you plan to live luxuriously or frugally, you will need to save a certain amount by the time you retire. Think of this figure as a mountain peak, which can be reached by various routes. 

If you’ve done everything right so far, that summit is still in plain view; You have followed the most direct and least difficult path, and you need only continue in that direction. If, however, your savings aren’t where they should be, it looks like you’ve wandered in the wrong direction—you’ll have to recalibrate and start climbing to reach the top.

To determine your current financial coordinates, you need to answer three questions:

  • How much have I saved so far?
  • How many years until I retire?
  • What is my annual income (and how much of it do I want to change)?

The answers to those questions will determine how much work you have to do to reach the top of that mountain. If you’ve saved plenty and you’re still young, great—you’re well on your way. If you haven’t saved anything and are nearing your sixties, no more. Let’s check out some examples using our retirement calculator to see how this works in reality.

Start early

Let’s start with a best-case scenario: You’re 25 years old, and you’ve only been working for a few years before you decide to get smart about your retirement. You live in a medium-sized city, let’s say Tulsa, Oklahoma, where you make $45,000 a year. You currently have $5,000 in your savings account and by saving $100 each month you manage to put another $5,000 into your 401(k). Your employer has promised to match 100% of your contributions to a retirement savings account, up to 5% of your gross income.

After thinking it over, you decide that you will be comfortable living a lifestyle similar to your current lifestyle in retirement. Assuming a rate of return on your investments of around 4%, you’ll need to save about $176 per month until you’re 67 to retire comfortably. Not bad! If you continue on your current path, however, you’ll be $260,000 short of your retirement goal when the time comes.

Plenty of funds

Let’s try again. You’ve just turned 40, and it suddenly feels like you’re not focused on your eventual retirement. Fortunately, you’ve built up some solid savings over the years: you have $25,000 in the bank and another $12,000 stashed away in a traditional IRA. You now live in Pittsburgh, where you earn $75,000 a year.

Now that you are older and wiser, you are a bit more optimistic about your investments and hence you assume a 5% annual return. You also plan to live fairly modestly after retirement and think your budget will be a little trimmer than it is today. Under this scenario, you’d need to save about 7.5% of your income, or about $469 per month, from now until your 67th birthday – even less than you’re already saving!

The Pittsburgh resident in the example above is well on his way to a happy retirement. SmartAsset’s retirement calculator projects she will have a savings surplus if she stays on her current course.

a little late

You are 54 years old and have saved sporadically throughout your career. All told, you have $50,000 in savings, most of it in your bank account, and because of your lax attitude toward your investments, you never expect to earn more than 4%. As a talent agent in Los Angeles, you are self-employed and have never bothered to set up a retirement account. You earn $100,000 and your wife earns $70,000 a year for a total of $170,000, and you’ve already agreed that you’ll both continue to work until you’re 70.

When you retire, however, you’re going to live lavishly – smoked salmon for breakfast, choice cuts of steak for dinner. The bad news: To top it all off, you’ll need to save $2,907 every month from now until you retire. It is about 20% of your monthly income. Compare that with what you’ve been saving each month so far. If you stay that course, you’ll have a savings shortfall of $660,000 when you retire.

Best Laid Plans

In the above scenarios, our hypothetical subjects kept their savings in one of several retirement savings options, either a savings account, a 401(k), or a traditional IRA. There are several ways to invest the money you set aside for retirement, depending on your goals. The rate of return that makes your money depends on the amount of risk you are willing to take, the success of your particular investment strategy, and to some extent luck. For example, an economic downturn can hurt your investments, at least in the short term. So the inflation rate and other economic events can also change.

All of which is to say: the unexpected can happen, and often does. It is best that you develop a solid plan based on the information you have. Don’t let the retirement savings statistics get you down. A retirement calculator can help you see how you’re doing so far and what you need to change to make your retirement goals. By setting goals and meeting them, you give yourself a chance for a rich and rewarding retirement.

What is a Retirement Calculator?

Leave a Reply

Your email address will not be published.

Scroll to top