This retirement calculator estimates the final balance of your retirement account, total interest earned and the monthly or annually income you will get through annuity payments during the pension phase. More information on how to prepare your inactivity period is detailed below the form.

## How does this retirement calculator work?

This planning tool might come in handy when trying to determine what savings you should be making before retirement in order to ensure yourself a decent monthly or annual income level. It is a comprehensive financial application since it returns all the relevant information that relates to the following figures:

- The final balance account at the age of retirement adjusted with inflation (if provided) by considering your current savings, monthly or early additions for the years to come before the payout phase and by an average interest or return rate.
- The estimated monthly or annual income during the benefits phase (adjusted with inflation where the case).
- The interest earned during the inactivity time in case you choose to withdraw your funds either monthly or annually.

The algorithm behind this retirement calculator is based on the formulas that are explained below:

- Number of years left until retirement:

NV = B –A

- Balance at the planned pension age (where the case adjusted by inflation):

SB = P1 + P2 + P3

Where:

P1 = D*((1+G/100)^(NV))

P2 = F*((1+(G/1200))^(NV*12)-1)/(G/1200)

P3 = E*(((1+((1+G/100)-1))^NV)-1)/((1+G/100)-1)

- Number of years to payout:

NP = C – B

- Monthly income:

SBM=SBA/((1-〖(1+G/1200)〗^(-(NP*12)))/(G/1200))

- Monthly income adjusted with inflation at the start of the inactivity period:

SBMA=SBM/(1+H/100)^NV

- Monthly income adjusted with inflation at the end of retirement:

SBMB= SBM /(1+ H/100 )^(NP+NV)

- Annual income:

SBB=SBA/((1-(1+G/100)^(-NP))/(G/100))

- Annual income adjusted with inflation at the beginning of the benefits phase:

SBBA=SBB/(1+H/100)^NV

- Annual income adjusted with inflation at the end:

SBBB=SBM/(1+H/100)^((NP+NV))

- Interest earned in case of monthly withdrawals:

IRM = (SBM*NP*12)-SB

- Interest earned by annual withdrawals:

IRA = (SBB*NP)-SB

Where:

A = Your current age

B = Desired retirement age

C = Assumed life expectancy

D = Current retirement balance

E = Annual savings addition

F = Monthly savings addition

G = Annual return/interest rate

H = Annual inflation rate.

## Example of a calculation

Let's assume the following conditions for an individual:

- Current age 35 years, derised retirement age 65 years and a life expectancy of 80 years.

- Current savings of $25,000, a monthly contribution of $400, a yearly add of $4,0000.

- Average annual return rate of 3.5% and inflation of 1%, the following information is displayed:

■ Your savings balance at retirement age (65 years) is $528,399.66 which in today’s money is equivalent to $392,031.82.

■ Your monthly retirement income is $3,777.44. At the age of retirement (65 years) this monthly income adjusted with inflation will equal to $2,802.57 in today’s money, while at the age of 80 this amount after inflation will equal to $2,413.99 in today’s money.

■ Your annual retirement income is $45,878.34. At the age of retirement (65 years) this annual income adjusted with inflation will equal to $34,038.19 in today’s money, while at the age of 80 this amount after inflation will equal to $29,318.78 in today’s money.

■ If you choose to be paid out on a monthly basis the total interest earned during retirement would be $151,538.99.

■ If you choose to be paid out on an annual basis the total interest earned during retirement would be $159,775.40.

## How much do I need to retire?

Depending on your own expectations this retirement calculator can help you forecast how much you will end up with in your investment account at the age of retirement, but apart from this in order to have a decent life standard similar to the one you have now, you have to set up a clear and objective savings goal. For that, most financial advisors recommend you to consider an income of between 70 – 85% from your annual income right before retiring.

What does that mean? For instance someone who earns annually $50,000 at the time to retire, would then need between $35,000 and $42,500 per year.

## Retirement planning is the key…

People within US and in all well developed countries are using this concept which defines all the aspects and actions anyone should consider and follow, with the final aim to ensure a decent life during inactivity period. As the retirement planning is something that many are concerned about, here’s what does that mean and how to plan appropriately this financial arrangement that aims to replace the employment income:

- Try to figure out roughly how much you will need per year during that period. In order to do that you need to adjust your current income for the years to come until retirement in such a way to assume a level of annual income you will earn at the end of the period you are employed. Then multiply that annual figure with 0.8 in order to get a rough figure of the annual income required during inactivity period.
- Try to assume a desired retirement age (in most cases this is up to 65 years) and a life expectancy, for that you may need to take a look at United States population statistics and adjust that based on your status. As per today 2015 the latest data publically released shows that the average no gender specific is somewhere between 79 – 80 years.
- Multiply the number of years that results by subtracting the age of retirement from the life expectancy figure, with the value you will need each year and you can find out total income you should be receiving all these years.
- Set up a realistic goal in terms of savings you should be making during the accumulation phase. That should consider two aspects: one is the maximum you can afford to save and the other one is how much you really should be saving in order to reach the level roughly estimated you will need.
- Invest appropriately in safe enough financial instruments, but in the same time these products should generate a satisfying return rate.
- Assume a realistic average annual rate of return and try to forecast the final balance with this retirement planning tool. Perform at least 5 scenarios and see how its evolution may affect your account's growth.
- Take account of the inflation rate influence and adjust your final balance with it.

## Few basic mistakes to avoid when planning to retire

- Don’t underestimate your needs, thus take a realistic approach on your monthly or yearly expenses during pension. Maybe 70 -80% from your annual income before retirement may seem an exaggerated rate for you, but this is what the statistics say, so for a safe plan include these limits into scenario.
- Don’t overestimate the return rate on your investments for the coming years, even though the performance of the last few years is excellent. Usually in finance the previous performance is NOT a guarantee for the future. So, don’t stop making the same savings you planned initially to, as a strategy that the performance is beyond what you assumed.
- Don’t underestimate inflation until retirement, neither during benefits period because it may impact in a significant way your balance, and so your incomes.
- Don’t underestimate or overestimate either the age of retirement or the life expectancy, as few years extra or in minus may affect dramatically your planning.

Apart from these cold financial variables you should be assuming appropriately in order to ensure a 100% income replacement you should also take a look and prepare yourself from psychological point of view. Thus please do consider in your retirement plan, some hobbies you may have, some travel plans or similar activities as the free time you will then should be enjoyable.

22 Jan, 2015