Retirement planning represents a daunting task, but one that if ignored can leave people
unable to ultimately achieve their goals. You should be proud you arrived here at this retirement income planning
calculator article, the sooner you can save and plan retirement in advance the better. So no matter where
you stand in the process today represents a better time to begin working on planning retirement income compared
to next month or next year. Some retirement calculators tell you how much you need to start saving today in
order to retire when you want to, and certainly our retirement calculator contains that element as well, but we
will examine not only the retirement income calculation and required retirement savings element in the process but
also the data you enter into the retirement planning calculator to generate more accurate output.
Especially if you are lucky enough to be thinking about retirement decades before you actually plan to retire,
the accuracy of variables used in retirement planning calculation may develop staggering differences in the
retirement savings suggestion results. Just as a bit of extra principal on a home loan means you can
your early mortgage payoff and the more you pay early the exponentially sooner the mortgage gets paid off, small
changes in retirement calculator data input dramatically changes output. Examples may prove the best way to
understand the concept at hand. The basic retirement calculator contains only five variables but a small
adjustment means a lot. Let’s imagine a 25 year old with many years to retirement. For our first test l
et’s place retirement at age 60 and figure an investment rate of 4%. In our second example let’s calculate
they wait until age 70 to retire with and investment return of 7%. Leave the other information the same, figure living
to age 85 and $10,000 in savings as constants to start and for now figure a consistent income request of $4000 per month
once retired. Our first scenario results in required savings monthly starting at age 25 of $785.08, by increasing the
investment return and retiring later the monthly savings requirement drops all the way down to $56.37. We’ll come
back to these variables later, for now just remember that even small variances in the numbers you give the retirement calculator
change your output widely.
Trying the predict the future including interest rates can amount to little more than a guess, other variables may be
easier to predict. Perhaps a person works at a job with a forced retirement age, certain retirement calculator variables
may be easier to come up with. One of the items potential retirees may feel more confident in includes the income monthly
they will need to retire. They may think they know their expenditures and make adjustments from there to reflect changes
in retirement. For some this might be right, but for many people their numbers represent erroneous assumptions from
which they can never recover to accurately calculate the savings needed for adequate retirement income.
As a practicing bankruptcy attorney for 10 years I found a common thread in a high number of bankruptcy cases included a
certain level of misconception about what people spend. With that in mind I suggest if this even sounds vaguely like it
might apply to you, the first step in calculating the income needed for retirement involves doing a serious analysis of
your true current expenses. The interactive budget calculator
at the Personal Home Budget site will examine
your budget and let you know when you truly spend more than you think, forcing you to make adjustments until you account
for all expenses. Figuring what you might spend decades from now can be hard enough without starting with a base that’s
out of whack to begin with.
With a good idea of your current spending proceed to make provisions for the future. Perhaps your income needed will
go down because the mortgage will be paid off, on the other hand if your current job pays for a car and health insurance
and monthly cash required will increase. Think hard and make personal adjustments. Next take inflation into account.
Use the Retirement Inflation Adjustment Calculator for the math.
Enter what you feel represents the monthly income you will need
for retirement expressed in today’s dollars in the Balance field. Fill in the inflation rate into the Yearly
Interest Rate field. If you have no idea you might want to try the
Consumer Price Index (CPI ). Calculate how long until you want to retire converted to months rather than years and input that for Months
for Pay Off. Press the Calculate Monthly Payments button and don’t worry about the Monthly Payments output. The number
you want to take away for this exercise centers on the Total Payout number delivered from the calculator. That number
represents the income per month you expect to need in retirement expressed as an inflation adjusted figure for dollars in the
year you wish to retire.
As far as the retirement calculator is concerned, it knows only what you tell it, so when you give it a number you established
as a required income when you retire it will figure it needs to account for the entire amount. You need to adjust this number
for the retirement calculator to work properly for you. Think about what other sources of income you may have in retirement
aside from your own savings and investments. For most people the first thought should race to Social Security income. Each
year the Social Security Administration sends you an estimate of what you might get paid from social security depending on when
you retire. Use the same dates for consistency sake. Next think about other sources of income. Perhaps you have a pension or
fixed payment annuity. Subtract the income you expect from these sources from the total retirement income you tell the calculator
you need. Remember for items like annuity funds or other retirement plans, if you feel you know for a fact what the income
will be subtract that number from the total needed for retirement as described, but then do not include the value of the annuity
in your savings. Look at the savings vehicle to decide the best way to account for your assets. Annuities often include a
guaranteed payment element, which would self liquidate the account, a stock portfolio or mutual funds will change with the
market and dividends aside offer no element of self liquidation. The retirement calculator tries to look at how much you need
to save for retirement calculating that you spend all your savings before you pass away. So for these two examples you would
subtract guaranteed annuity income for monthly retirement income needed and not include the value of the annuity in the
current savings, while you should include a basic stock or mutual fund portfolio in the savings portion and let the retirement
calculator establish how much it will contribute to your income during your retirement years. Look at the root of the assets,
so stocks and mutual funds should get the same treatment no matter if you hold them in a personal account or an IRA account.
Unless you are retiring before age 59 ½ the fact that you hold assets in a retirement account like an IRA or 401K will
not change the output of the retirement calculator.
People will wonder how to include home equity in their retirement calculations, and the answer depends on what you plan to do
with your home both during and after your retirement years. Let’s go over some of the most common scenarios for home and
value based on home equity. For a family house or estate where a family property already came to the retirees from previous
generations and they plan to leave the property as unencumbered by a mortgage as they can to the younger children or relatives do
not include any value at all in the retirement calculations. Those who plan to stay in their homes without taking any new mortgages
should treat their home the same way but ignoring it in the retirement calculator no matter how long the house has been in the family
or if they plan to donate the home after they die. People planning to sell their home upon retirement and rent housing in a new location
can include their home equity as a part of their current savings figure, but don’t forget to add a rent payment to your future
expenses and do not include your current mortgage payment. If you plan to move and buy a new home at retirement you not only need
to calculate the new mortgage payment, but you also need to take into account any down payment that might be needed to buy the
new house or condo. Some people may wish to use their home equity to help them generate retirement income, stay in the home, and
figure when they pass away or move to other housing, like a nursing home, the home will sell rather than go to heirs. The people
stand as candidates for a Reverse Mortgage. You can read about the whole process at our
reverse mortgage information FAQ,
but if you want to assume you will make a reverse mortgage a part of your retirement plans you should probably use a reverse mortgage
calculator, one can be found at our reverse mortgage
page, subtract the income generated by the reverse mortgage from what you
estimate you will need for retirement income and ignore home equity as a savings element for data input. Trying to use home equity by
borrowing money through a home equity loan as a long term financial plan for retirement sits as a plan I advise against except as
a last resort.
Calculating life expectancy and rate of return involves many elements. Start with public life expectancy data and even with that where
to start might boggle the mind. Public numbers could vary and depend on many factors, life expectancy, for example may
depend on when you were born, where you live if you are married and a slew of other factors. From there look at your own
personal situation, when speaking about calculating the number of years living on retirement income you might want to
include adjustments based on your own family history or personal health. These kinds of adjustments need to occur on the
interest rate side as well. Have you done well with investments previously, would your portfolio be considered very
risky or very conservative, have you converted holdings to a portfolio of stable but low yield assets for retirement
already? As we talked about at first, the numbers you select for input here may result in huge differences in the output
With all of this background work completed you may finally start working with the retirement income planning calculator.
Enter your numbers and see the results for total savings expected as well as how much you need to save every month starting today
in order to retire with enough funds saved to meet the goals you set. From this point you once again need to personalize the output
from the retirement calculator. Does everything look in order or is the amount of savings required unrealistic? Certainly use this
opportunity to make adjustments. Perhaps you were too conservative with your interest rates, maybe you revisited your budget and
lowered retirement income required by thrifty adjustments, working for more years and living in retirement for fewer years makes
a big difference. At the end of the day the numbers may still be enough to throw you into a deep depression. Do not let a troublesome
case like this make you throw your hands up and ignore the situation. You results are math, and they will not change. I hate to say it,
but if anything it might get worse. I know many people of my age were told by elders and economists back when college tuitions were
$12,000 or $15,000 per year that our children might pay up to $30,000 annually. We laughed and said that looked crazy but today
students graduate from a schools that cost over $50,000 per year, an example of real life requirements exceeding any predications or
calculations that might have been made 20 or 30 years prior to an actual event.
At this stage you might start to look at current budgeting for how to save more as well as what investment vehicles you employ.
It’s always a tough balance to look at risky investments where you might lose everything compared to safe investments with low
returns. One investment, although surprisingly popular, should never be included in retirement planning. A staggering 20% or more of
people surveyed responded that they expected their retirement funds to originate from lottery winnings. When I first heard this I
could not believe it, but I see the statistic over and over. The lottery represents a tax on people who don’t understand the
math and has zero place in any retirement plan. The more you can save and the longer you have until retirement the better. For some
people the numbers may just never add up, in these cases do not figure on gambling or risky investments, perhaps taking on a part
time job during retirement fills your income gap.
In all cases, the earlier you start planning for retirement the better, and no matter if the retirement income calculator reassures you
that all your plans look in order or that you need a major change in course, the more time to adjust plans the safer you are. Even those
with solid investments can deal with personal life events that might affect savings or retirement by already establishing a solid base.
We hope you found our retirement income calculator useful and can use it to help plan a relaxing and enjoyable retirement.
See you around the shuffleboard court.