Best Retirement Calculator (2018) – See How Much You’ll …
Posted: October 30, 2018 at 9:45 pm
Retirement Calculator One simple question
Photo credit: iStock/stevecoleimages
For a working person, the golden years of retirement can be both easy and difficult to imagine. We may fantasize about international adventures or beachside escapes, but rarely do we lay the groundwork for realizing our retirement dreams financially. There are, after all, more immediate concerns: job, kids, mortgage payments, car paymentsthe list goes on. Amid this daily grind, its easy to put retirement savings on the back burner, especially when its 15, 20 or 30 years off. Indeed, surveys have repeatedly shown that the average American retirement savings is too low and that significant numbers of Americans in their 30s, 40s and even 50s have no retirement savings at all.
Needless to say, the save-nothing approach is not recommended. At its best, retirement is a time when the stresses of years one through sixty-five (or so) fade, leaving room for relaxation, delectation and grandchildren. If money is scarce, however, financial anxiety could crowd these pleasures out. Want to know how to retire comfortably? Start saving.
On the other hand, just as its unwise to save nothing at all, its unrealistic to try and save every penny that isnt already dedicated to paying bills or buying groceries. For most retirees, there are other sources of retirement income besides savings, Social Security being chief among them. The common assumption is that some savings, in addition to Social Security and a less expensive lifestyle (no more kids in the house, no more commuting costs) will all add up to financial security in our sunset years. To put it another way: its common to assume that if we save in good faith, things will work themselves out. For some, that may turn out to be true, but such success stories are more a result of good luck than a sound retirement strategy.
That phrase sound retirement strategy is where many of us lose interest. It is loaded with negative connotations: expensive investment advisors, large stacks of documents and complex spreadsheets, to name a few. But a sound retirement savings plan doesnt have to be complicated. It can be boiled down to one simple question: How much do I need to save to retire? By putting away a percentage of your income every month from now until you retire, you can do away with the financial anxieties far too many seniors find themselves facing. A retirement calculator can help.
Photo credit: iStock/FangXiaNuo
To figure out exactly what it will take to retire in comfort, its important to consider what kind of lifestyle you expect to lead in retirement. Do you hope to travel? To Paris, or someplace a little cheaper? How often do you want to eat out? Go to the movies? The beach? Do you want to move closer to the beach? The grandchildren? These questions may seem trivial now, but they can help give you an idea about the income youll need in the future. If youre set on seeing the Eiffel tower, the Pyramids at Giza and the Taj Mahal, youre going to need a sizeable nest egg to draw upon. On the other hand, if you expect to live a rather low-key lifestyle, with far fewer expenses than you currently have, you wont need to save quite as much.
The important thing is to be realistic. Dont shortchange your future self by assuming you can live off of canned tuna and scrambled eggs. While some costs will likely go down in retirement, others may go up. Specifically healthcare costs are likely to rise in retirement. So its best to have a cushion for unpredictable costs like that. Plus, retirement is your reward for decades of hard work: treat yourself accordingly.
Whether you plan to live lavishly or frugally, youll need to have a certain amount of money saved by the time you retire. Think of this figure as a mountain summit, reachable by several different paths. If youve done everything right so far, that summit is still in plain view; youve followed the most direct and least difficult path, and all you need to do is continue on in the same direction. If, however, your savings arent where they should be, its as if youve wandered in the wrong directionyoull need to recalibrate and start climbing in order to reach the summit.
To determine your current financial coordinates, you need to answer three questions:
How much have I saved thus far?
How many years until I retire?
Whats my annual income (and how much of that do I want to replace)?
The answers to those questions will determine how much work you have to do to reach that mountaintop. If youve saved plenty and youre still young, greatyoure well on your way. If youve saved nothing and your sixties are just around the corner, not so much. Lets check out some examples using our retirement calculator to see how this works in reality.
Lets begin with a best case scenario: youre 25, and youve only been working a few years before you decide to get smart about your retirement. You live in a mid-sized city, lets say Tulsa (Oklahoma!) where you earn $45,000 per year. You currently have $5,000 in your savings account, and by saving $100 per month you manage to put another $5,000 in your 401(k). Your employer has promised to match 100% of your contributions to the retirement savings account, up to 5% of your total income.
After thinking it over, you decide that you would be comfortable living a lifestyle similar to your current one in retirement. Assuming a rate of return on your investments around 4%, you would have to save about $176 per month from now until you turn 67 to retire comfortably. Not bad! If you continue on your current path, however, you'll be over $260,000 short of your retirement goal when the time comes.
Getting an early start on retirement savings can make a big difference in the long run. By saving an extra $76 per month, this 25 year-old can close the $265,261 shortfall projected by SmartAssets retirement calculator.
Lets try another one. Youve just turned 40, and it suddenly dawns on you that youve not been focusing on your eventual retirement. Fortunately, youve been able to put away some solid savings over the years: youve got $25,000 in the bank and another $12,000 stored in a traditional IRA. You now live in Pittsburgh, where you earn $75,000 per year.
Now that youre older and wiser, youre a little bit more optimistic about your investments, and so you assume a 5% annual return. You also plan on living fairly modestly once you retire, and think your budget will be a bit trimmer than it is today. Under this scenario, youd only have to save about 7.5% of your income, or about $469 per month, from now until your 67th birthday - less than you are already saving!
This Pittsburgh resident is right on track for a happy retirement. SmartAssets retirement calculator projects shell have a savings surplus if she stays on her current course.
Youre 54 and youve saved sporadically over the course of your career. All told, youve got $50,000 in savings, most of it in your bank account, and because of your laissez faire attitude toward your investments, you dont expect to ever earn more than 4%. As a talent agent in Los Angeles, youre self-employed and have never bothered to set up a retirement account. You make $100,000 and your spouse makes $70,000 for a total of $170,000 a year, and youve already agreed that you will both keep working until you hit 70.
When you do retire, however, youre going to live lavishlysmoked salmon for breakfast, choice cuts of steak for dinner. Bad news: to pull all of that off, youll need to save $2,907 every month from now until you retire. That's about 20% of your monthly income. Compare that to the 5% per month you've been saving up until now. If you stay on that course, you'll have a savings shortfall of $660,000 when you retire - yikes!
Uh-oh. This Los Angeles couple put off the important retirement decisions for too long. SmartAsset's retirement calculator projects a retirement shortfall of $660,118 if they don't ramp up the savings ASAP.
In the above scenarios, our hypothetical subjects kept their savings in one of a variety of retirement savings options, in either a savings account, a 401(k) or a traditional IRA. There are many ways you can invest the money you set aside for retirement, depending on your goals. The rate of return your money earns depends on the risk you are willing to take on, the success of your particular investment strategy and, to a certain extent, luck. For example, an economic downturn can hurt your investments, at least in the short run. So too can changes in the inflation rate, and other economic events.
All of which is to say: the unexpected can happen, and often does. The best you can do is to develop a solid plan based on the information you have now. Don't let retirement savings statistics get you down. A retirement calculator can help you see how you are doing so far and what you need to change to make your retirement goals. By setting goals and meeting them, you give yourself the opportunity for a rich and rewarding retirement.
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Best Retirement Calculator (2018) - See How Much You'll ...
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