This retirement readiness calculator is intended to provide a rough idea of how long your retirement savings and income will last. The estimate is based on your inputs and some assumptions about taxes, inflation and investment yields.
Annual Cost of Living in Retirement. This is the annual expenses you expect to have during your retired years, in today’s dollars. As a general rule of thumb, people should expect their annual expenses during retirement to be roughly equivalent to what they are today. As an example, let’s assume your after-tax income is $50,000 per year. If you set aside $10,000 per year for retirement and spend the remaining $40,000 during the course of the year, then your current cost of living is $40,000.
Current Retirement Savings. This is the current balance in all of your retirement accounts, combined. For the purpose of providing the retirement readiness estimate, we have assumed that all contributions to the retirement savings accounts are tax-deferred, such as with a traditional IRA or a 401(k) plan.
Annual Retirement Contributions. This is the annual amount you currently set aside for retirement. For the purpose of providing the retirement readiness estimate, we have assumed that the annual amounts you contribute to retirement savings will increase over time, with inflation.
Annual Pension, Social Security, and Other Income. This is the annual pre-tax income you expect to receive from all sources after you retire. This may include pensions, social security, or other sources of regular income; however, it should exclude withdrawals from your retirement savings accounts such as IRAs and 401(k)s. The Social Security Administration provides a simple tool on its website to help you estimate how much social security compensation you will receive during retirement: http://www.socialsecurity.gov/OACT/quickcalc/index.html.
In order to provide an estimated age when retirement savings and income no longer meet your cost of living needs, this calculator forecasts how much your costs, retirement savings, and retirement income will change from today through well into the future.
We have made certain assumptions in order to run the calculations. We assumed average inflation of 4%, which impacts future increases to (1) the contributions you make to your retirement accounts, (2) the amounts you will receive from pensions, social security and other income sources, and (3) your cost of living. We assumed an average annual yield of 7% on investments in your retirement accounts. We assumed a 25% tax rate on income during retirement, and we assumed that all withdrawals from retirement accounts during your retirement will be taxable events.
The retirement readiness calculator is intended to provide a ballpark estimate and is for informational purposes only. You may need to consult with a financial or tax professional for more personalized analysis of your retirement plan.
Why do some people live long, healthy, and happy lives, while others struggle with dementia, heart disease, and depression? Learn how to protect yourself from those outcomes based on the latest research on health, longevity, happiness, and finances in the U.S. News ebook.Get the Live To 100 Ebook