Retirement Nestegg Calculator
Do you know how much it takes to create a secure retirement? Use this calculator to help determine what size your retirement nestegg should be.
Definitions
Current age
Your current age.
Age of retirement
Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your retirement savings. So if you retire at age 65, your last contribution happened when you were actually age 64. This calculator also assumes that you make your entire contribution at the end of each year.
Household income
Your total household income. If you are married, this should include your spouse's income.
Current retirement savings
Total amount that you currently have saved toward your retirement. Include all sources of retirement savings such as 401(k)s, IRAs and Annuities.
Rate of return before retirement
This is the
annual rate of return you expect from your investments after taxes. The actual
rate of return is largely dependent on the type of investments you select.
From January 1970 to December 2008, the average annual compounded rate of return
for the S&P 500, including reinvestment of dividends, was approximately 9.7%
(source: www.standardandpoors.com). During this period, the highest 12-month
return was 61%, from June 1982 through June 1983. The lowest 12-month return
was -39%, which happened twice, once from September 1973 to September 1974
and again from November 2007 to November 2008. Savings accounts at a bank may
pay as little as 1% or less but carry significantly lower risk of loss of principal
balances.
It is important to remember that these scenarios are hypothetical
and that future rates of return can't be predicted with certainty and that
investments that pay higher rates of return are generally subject to higher
risk and volatility. The actual rate of return on investments can vary widely
over time, especially for long-term investments. This includes the potential
loss of principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not reflect
sales charges and other fees that funds and/or investment companies may charge.
Rate of return during retirement
This
is the annual rate of return you expect from your investments during retirement,
after taxes. It is often lower than the return earned before retirement due
to more conservative investment choices to help insure a steady flow of income.
The actual rate of return is largely dependent on the type of investments you
select. From January 1970 to December 2008, the average annual compounded rate
of return for the S&P 500, including reinvestment of dividends, was approximately
9.7% (source: www.standardandpoors.com). During this period, the highest 12-month
return was 61%, from June 1982 through June 1983. The lowest 12-month return
was -39%, which happened twice, once from September 1973 to September 1974
and again from November 2007 to November 2008. Savings accounts at a bank may
pay as little as 1% or less but carry significantly lower risk of loss of principal
balances.
It is important to remember that these scenarios are hypothetical
and that future rates of return can't be predicted with certainty and that
investments that pay higher rates of return are generally subject to higher
risk and volatility. The actual rate of return on investments can vary widely
over time, especially for long-term investments. This includes the potential
loss of principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not reflect
sales charges and other fees that funds and/or investment companies may charge.
Years of retirement income
Total number of years you expect to use your retirement income.
Percent of income at retirement
The percent of your working year's household income you think you will need to have in retirement. This amount is based on your income earned during the last year you will work. You can change this amount to be as low as 80% and as high as 120%.
Expected salary increase
Annual percent increase you expect in your household income.
Expected rate of inflation
What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2008. The CPI for 2008 was 4.0%, as reported by the Minneapolis Federal Reserve.
If you are married checkbox
Check this box if you are married. Married couples have a higher maximum social security benefit than single wage earners.
To include Social Security checkbox
Check
this box if you wish to include social security benefits in your retirement
planning. Social Security is based on a sliding scale depending on your income,
how long you work and at what age you retire. Social Security benefits automatically
increases each year based on increases in the Consumer Price Index. Including
a spouse increases your Social Security benefits by 1.5 times your individual
estimated benefit. Please note that this calculator assumes that you have only
one working spouse. Benefits could be different if your spouse worked and earned
a benefit higher than one half of your benefit. If you are a married couple,
and both spouses work, you may need to run the calculation twice - once for
each spouse and their respective income. This calculator provides only an estimate
of your benefits.
The calculations use the 2009 FICA income limit of $106,800 with an annual
maximum Social Security benefit of $27,876 per year for a single person and
1.5 times this amount for a married couple. To receive the maximum benefit
would require earning the maximum FICA salary for nearly your entire career.
You would also need to begin receiving benefits at your full retirement age
of 66 or 67 (depending on your birthdate). Your actual benefit may be lower
or higher depending on your work history and the complete compensation rules
used by Social Security.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
