Retirement calculator

How the calculation works

The calculator answers three questions: how much you need, how much you are on track to have, and what it would take to close any difference.

1. Your target nest egg. This is the yearly income you want from savings divided by your withdrawal rate. At a 4% withdrawal rate, every $1 of yearly income needs $25 saved, because 1 divided by 0.04 is 25. So $60,000 a year needs $1,500,000. A lower withdrawal rate is more cautious and raises the target. A higher one lowers it but makes it more likely the money runs out.

2. Your projected savings. The calculator grows two things until your retirement age, month by month:

• Your current savings, which grow by the monthly rate for every month until you retire.
• Your monthly contributions, each added at the end of the month and then growing for the months that remain.

The monthly rate is the one that compounds to your annual return over 12 months: the twelfth root of (one plus the annual return), minus one. For a 7% return, that is about 0.565% a month.

3. The monthly contribution needed. The calculator takes your target, subtracts what your current savings will grow to on their own, and works out the level monthly deposit that would grow to cover the rest by your retirement age. If your current savings already get you there, the answer is zero.

How to read your result

The headline is what you are on track to have at your retirement age if you keep saving the same amount and earn the return you entered. Under it:

• Target nest egg is what you need for your chosen income at your chosen withdrawal rate.
• Gap or surplus is the difference between the target and your projection.
• Monthly contribution needed is the amount that would hit the target exactly, from today.
• Yearly income your projected savings support turns your projection back into income, using the same withdrawal rate. It tells you what your current plan would pay you each year.

The bar shows how much of the target your projection covers. If you are short, look at the needed contribution and the supported income together. One shows the cost of closing the gap, the other shows what happens if you do nothing.

A worked example

The calculator opens with someone aged 35 who plans to retire at 65, has $50,000 saved, adds $500 a month, expects a 7% return, wants $60,000 a year from savings, and uses a 4% withdrawal rate.

• Target: $60,000 divided by 0.04 is $1,500,000.
• Current savings: $50,000 growing at 7% a year for 30 years becomes about $380,613.
• Contributions: $500 a month for 360 months grows to about $584,726.
• Projected total: about $965,339, which is 64% of the target.

That leaves a gap of about $534,661. At a 4% withdrawal rate, $965,339 supports about $38,614 a year, not the $60,000 wanted. To reach $1,500,000 by 65, the monthly contribution would need to rise to about $957, a little under double the current $500.

Other ways to close the same gap include retiring a few years later, lowering the income goal, or a mix of these with a higher monthly amount. Try each in the calculator to see which trade feels right.

Mistakes to avoid

• Mixing current and future dollars. If you enter your income goal in current dollars, use a return after inflation too. Otherwise the projection is in future dollars and looks better than it will feel.
• Using a hopeful return. A small change in the return makes a big difference over 30 years. Test a cautious rate as well as your best guess.
• Forgetting other income. Enter only the income you want from your savings. If you expect a pension or Social Security, take that off first, or your target will be too high.
• Treating the withdrawal rate as fixed. The 4% figure comes from research on past market returns over retirements of about 30 years. An earlier or longer retirement may call for a lower rate.
• Leaving out taxes and fees. Withdrawals from some accounts are taxed, and fund fees reduce your return. Both shrink what you can actually spend.

Common questions

What withdrawal rate should I use?

4% is a common starting point for a retirement of around 30 years. If you plan to retire early, want a bigger safety margin, or expect a long retirement, try 3% or 3.5%. Each step down raises the target nest egg, so it is worth seeing the effect.

What return should I expect?

Nobody knows future returns. A balanced approach is to run the calculator at two or three different rates and plan around the cautious one. If your investments shift toward bonds and cash as you get closer to retirement, your average return may be lower than in your early years.

Should I include my employer match?

Yes. Any money that goes into your retirement accounts each month counts, whether it comes from you or your employer. Add the match to your own contribution in the monthly box.

Is this enough to plan my retirement?

It is an estimate to help you see where you stand. Real plans also need to think about taxes, health costs, when to claim benefits, and how to invest as you age. A financial adviser can build a plan around your full situation, and it is worth talking to one before making large changes.