Retirement ShortfallOne of the biggest risks to a
comfortable retirement is running out of money too soon. This calculator helps
you determine your projected shortfall or surplus at retirement. You can also
see just how long your current retirement savings will last. If your results
project a shortfall, you might need to save more, earn a better rate of return,
or possibly delay your retirement.
Definitions
- Current retirement savings
- This is your current retirement
savings. You should include any savings or investments that are specifically for
your retirement. Be careful not to include amounts ear marked for other
purposes, such as your children's education.
- Monthly contributions
- The amount you will contribute each month to
your retirement savings. This calculator assumes that you make your contribution
at the beginning of each month. We also assume that this amount remains constant
until you retire.
- Years before you retire
- The number of years you have to save
before your retirement. If you are planning on retiring immediately, you should
enter a zero.
- Number of years in retirement
- The number of years you expect to
spend in retirement. If this retirement savings plan is intended to support you
and your spouse, make sure this is long enough years to account for your
spouse's potentially longer lifespan.
- Annual retirement expenses
- Your after tax retirement expenses.
Since this calculator assumes that you will be paying income taxes on interest
as it is earned, your expenses should be entered on an after tax basis. Your
retirement expenses are increased each year by your expected inflation rate if
the "Increase expenses with inflation" box is checked.
- Expected inflation rate
- 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
2004.
- Rate of return before retirement
- This is the annually compounded
rate of return you expect from your investments before taxes. The actual rate of
return is largely dependant on the type of investments you select. From January
1970 to December 2004, the average compounded rate of return for the S&P 500,
including reinvestment of dividends, was approximately 11.5% per year. During
this period, the highest 12-month return was 64%, and the lowest was -39%.
Savings accounts at a bank pay as little as 1% or less. It is important to
remember that future rates of return can't be predicted with certainty and that
investments that pay higher rates of return are 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.
- Rate of return during retirement
- This is the annual rate of return
you expect from your investments during retirement. 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
dependant on the type of investments you select. From January 1970 to December
2004, the average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.5% per year. During this period,
the highest 12-month return was 64%, and the lowest was -39%. Savings accounts
at a bank pay as little as 1% or less. It is important to remember that future
rates of return can't be predicted with certainty and that investments that pay
higher rates of return are 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.
- Federal tax rate
- Your marginal federal tax rate.
- State tax rate
- Your marginal state tax rate.
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