The retirement calculators you find all over the web are good. But they never seem to answer the questions I want answered. I created my own. It is designed for someone who is out of debt, actively saving for retirement, and trying to figure out if they are saving enough.
How does it work?
- What do you want?: How many dollars do you want to get per year when you retire? Subtract off what you will already get from Social Security, pensions, or annuities to see how much you need each year generated from your personal retirement savings. This assumes that you want to leave the principal untouched. Then you don’t have to worry about living too long for your savings, and you will have a generous pot of money to leave to your heirs.
- Calculate the goal: The model uses simple rates of return, inflation, and tax rates to figure out how much money you will need. (This number is usually overwhelming. But remember, to leave the principal untouched takes a lot of money. It also includes decades worth of inflation.)
- What do you have so far?:
- How do you get there?:The model figures out the average annual rate of return you need to get from where you are to where you want to go.
- How much do you need to help it?: Say you need to average a 20% gain every year to get to your goal. Compound interest and the market will take care of some of that for you (you can adjust exactly how much). The difference is the amount you need to contribute every year. This is expressed as both a percentage and dollars.
- How are you doing?: Put in how many dollars a year you are contributing and compare it to how much you need to put in. This is the answer.
There is also a tab called “Simpler Version”. This was made by made one of the commenters here. It is a much simpler way of looking at the issue. It has a row for each year. Each year it figures out how much inflation has increased the goal, how much your savings grew via contributions and market growth, and spits out how much money you have, and a simple “Keep Working” or “Relax” statement that sums it up.
These models make all kinds of simplifying assumptions. The answers they give are crude. But they are good approximations. You should be able to figure out if you are doing a good job saving for retirement or not.
It is also rewarding to play with the inputs. What if the market does really well? What if I inherit some money? What if I push off retirement by a few years? What if I can’t contribute for a year or two? What if I subtract my pension off the future dollars? What if inflation gets severe? Etc., etc. Playing with the inputs is what really helps. It lets you know how robust the findings are. If you play with a lot of different inputs and the answer is always you are doing okay, you are really doing okay. If no matter what you put in you can’t get to your goal, it’s time to do some hard thinking.
Retirement Calculator by Muttroxia is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.