How to Use This Retirement Calculator
Planning for retirement can feel overwhelming, but breaking it down into numbers makes it manageable. This calculator helps you see if you are on track to maintain your lifestyle when you stop working.
Key Factors Explained
- Current Age & Retirement Age: The time horizon is your greatest asset. The more years you have to compound your returns, the less you need to save annually.
- Annual Return: This is the expected rate of return on your investments. A conservative portfolio might average 5-6%, while a more aggressive stock-heavy portfolio might target 8-10%.
- Inflation: Inflation erodes purchasing power. $60,000 today will not buy the same amount of goods in 20 years. This calculator adjusts your "Goal" to account for inflation.
- Desired Income: Most financial advisors suggest you need about 70-80% of your pre-retirement income to live comfortably, though this varies by lifestyle.
The 4% Rule
To determine your "Goal" (the total nest egg needed), we use the 25x Rule. This rule states that you should save 25 times your desired annual retirement income. This allows you to withdraw 4% of your savings annually (adjusted for inflation) with a low risk of running out of money over a 30-year retirement.