Use this calculator to see if you’re on track toward retirement and how much you need to save to get there.
How to Use This Retirement Calculator
To use this retirement calculator, simply fill in the details to discover how much you'll need to save.
Retirement Savings Goal: How much you want to have saved by retirement.
Years to Retirement: How many years you have left until you want to retire.
Annual Rate of Return (%): The average expected returns from your investments.
Current Amount Saved: How much you currently have invested.
After inputting these details, try adjusting each of the numbers to see how it can impact your retirement savings.
Why Is Annual Rate of Return On Investments Important?
Your average annualized rate of return is determined by your investment portfolio mix. A portfolio primarily invested in stocks should earn a larger return (over time) than a portfolio that’s invested in bonds and fixed-income assets (e.g. CDs).
Vanguard has a great model that shows different asset allocations and their average rates of return since 1926. This should provivde an idea of how much you might expect to earn per year.
It's important to remember, however, that past performance doesn't necessarily guarantee future results.
Will I Have Enough For Retirement?
When determining whether you’ll have enough money during retirement, it's not about your current income: It’s about projecting what you’ll spend.
1. Determine Your Annual Retirement Income Needs
While it’s impossible to predict your exact future spending, compiling an estimate can help you create a retirement savings goal. Start by putting together a rough monthly budget. Include things like travel, medical costs, and any one-time purchases you expect to make in retirement.
2. Adjust Your Spending and Budget To Save More
If you aren’t on target for retirement, it’s time to roll up your sleeves and adjust your spending. This doesn’t mean giving up everything you love. It does mean, however, that you’ll need to be intentional about saving more money each month.
The quickest way to do this is to look through your past spending over the last few months and find areas of waste. Spend too much on fast food? Know the Amazon delivery driver on a first-name basis? Cutting out excess spending frees up more money and boosts your savings rate.
3. Use The Four Percent Rule
While there are many “retirement rules” for determining nest eggs, the 4% rule is a good target. Based on Bill Bengen’s safe withdrawal rate study, this rule states that you can withdraw 4% of your retirement portfolio in the first year of retirement. For each subsequent year, increase that withdrawal rate with inflation.
To determine how much you’ll need to save for retirement, multiply how much you plan to spend annually by 25. For example, if you plan on spending $60,000 per year in retirement (not including social security), you’ll need to save $60,000 x 25 = $1,500,000 for retirement. Remember: Your annual spending amount will also need to include income taxes.
Note: This is based on a 30-year retirement. If you anticipate a longer retirement period, the 4% rule may not work.
How Long Will My Retirement Savings Last?
The lifetime of your retirement investments will depend on many factors, including the rate of inflation, rate of return, investment mix, and taxes. The key to building a healthy retirement fund is investing early and often during your working career.
Once you’re retired, you’ll need to control your spending in order to stay within your retirement plan. If you budgeted $50,000 in annual spending – but continue to spend $70,000 – you’ll greatly increase the risk of running out of money.
Consider the Rate of Return During Retirement
To stay on course during market volatility – and improve your chances of making your money last – it’s important to stick to your desired asset allocation. Always consider your risk tolerance when selecting how to invest in retirement.
For example: If you choose to invest in 50% stock index funds and 50% bonds index funds, this mix could help balance the risk of stock market volatility while still offering some of the upside gains.
How Will Inflation Affect My Retirement Savings?
Inflation can eat into your retirement portfolio and should be considered when calculating your annual rate of return. While rates of inflation are currently low (under 2%), using an average inflation rate of 3% is a good starting point when calculating your retirement needs.
Example: If you expect an 8% return on your retirement portfolio and a 3% annual inflation rate, you can expect a 5% inflation-adjusted return on your investments.
How a Withdrawal Strategy Can Help You Save for Retirement
Understanding the method of withdrawing funds is an important part of calculating your retirement number. Since many retirement accounts have age restrictions and tax implications, it’s wise to work with a licensed financial advisor who can help you determine the best, most efficient way to withdraw your retirement funds.
How to Find the Best Retirement Accounts?
Choosing the best retirement plan can help to save a substantial amount of money on taxes.
Employer-Sponsored Retirement Account
Investing in a 401(k), 403(b), or another employer-sponsored plan can help you save for retirement – directly from your paycheck – while lowering your taxable income. If you choose a Roth version, funds may be withdrawn tax-free at retirement.
Individual Retirement Account (IRA)
An individual retirement account (IRA) is a tax-advantaged retirement account that is unattached to your job. You can choose a broker to open an account with – and have access to – more investment options than a standard employer-sponsored account. You can contribute to a traditional IRA to lower your taxable income. A Roth IRA allows your investments to grow tax-free and can be withdrawn tax-free during retirement.
Health Savings Account (HSA)
The health savings account (HSA) is a tax-advantaged account that allows you to contribute money for every year you have a qualifying high-deductible health plan (HDHP). These funds lower your taxable income, grow tax-free, and – if used for qualifying medical expenses – can be withdrawn tax-free.
After age 65, you can also treat the HSA like a traditional IRA and withdraw funds for non-medical expenses (though you will be required to pay income taxes).
Roth or Traditional IRA: Which Is Better?
Both the traditional and Roth IRA are tax-advantaged accounts, but which is better? It really depends on your anticipated future tax rate.
If you’re in your high-earning years and think you’ll have a lower tax rate in retirement, investing in a traditional IRA will help you save more money in taxes right now.
If you expect to be taxed at a higher rate in retirement, it makes more sense to invest in a Roth IRA (which allows tax-free withdrawals in retirement).
Should I Have More Than One Retirement Account?
Absolutely. Spreading your investments across several tax-advantaged retirement accounts is the best way to maximize returns and save money on taxes.
For example: Maxing out your work 401(k) plan at $19,500 per year and a traditional IRA at $6,000 per year will lower your taxable income by $25,500. Depending on your tax situation, this could save you thousands of dollars this year.
Maxing out multiple retirement accounts can significantly speed up the process of reaching your retirement number.