This retirement savings calculator helps you estimate the growth of your retirement savings account and the total interest you can earn until you plan to retire. Everything there is to know on how to prepare your retirement is explained below the tool.
How does this retirement savings calculator work?
This intuitive application allows simulate the growth of your 401k balance as well as the monthly income you can get from your retirement account during the benefits phase, even adjusted with inflation in case an average assumed inflation rate is specified. Moreover it can also figure out how much you should contribute to your 401k plan in order to achieve a certain savings goal that can further ensure a decent monthly or annual withdrawal level. The results returned consist in the following information:
- Final balance at the time of retirement by considering your current savings, your monthly and employers contributions for the years left and an expected return rate as well as the average annual inflation rate where the case;
- The value of the monthly payout during retirement adjusted with inflation if given.
- Total interest earned before and during pension time as well as the overall figure of the contributions saved before retirement.
The algorithm of this retirement savings calculator is based on the formulas explained below:
- Number of years left until retirement:
NV = B –A
- Number of years to be paid out – benefits phase
NP = C - B
- Final balance of the 401k account at retirement age = SB
SB = P1 + P2
P1 = D*((1+H/100)^(NV))
P2 = [(E*F/100)+(E*G/100)]*((1+(H/1200))^(NV*12)-1)/(H/1200)
- Total amount in 401k account at retirement age in today’s money = SBA
SBA = SB/〖(1+I/100)〗^NV
- Monthly income = SBM
BM = SB/((1-〖(1+H/1200)〗^(-(NP*12)))/(H/1200))
- Monthly income in today’s money at the age of retirement = SBMA
SBMA = SBM/(1+I/100)^NV
- Monthly income in today’s money at the end of the annuities phase = SBMB
SBMB = SBM/(1+I/100)^((NP+NV))
- Total interest earned (before and during retirement) = IRM
IRM = (SBM*NP*12)-D-(((E*F/100)+(E*G/100))*NV*12)
- Total savings made (before retirement by you and/or employer) = IRA
IRA = D+(((E*F/100)+(E*G/100))*NV*12)
A = Your current age
B = Desired retirement age
C = life expectancy
D = Your current savings (401k + other):
E = Your monthly gross salary
F = Your 401k contribution percent
G = Employer’s contribution percent
H = Investment’s return rate.
I = Annual inflation rate.
Example of a calculation
In case of an individual with the following data:
- Current age 35 years
- Desired retirement age 65 years
- Life expectancy of 85 years
- Monthly gross income of $2,000
- Current savings of $40,0000 and monthly 401K contributions of 15% by its own and 15% by employer
- Annual return rate on investment of 4.5%
- Assumed inflation percentage of 1% the following results are displayed:
■ Total amount in your 401k account at retirement age of 65 years is $609,539.61. At that age your final retirement balance account adjusted with inflation will equal to $452,231.41 in today’s money.
■ During retirement your monthly income will be $3,856.25. At the age of 65 years this monthly income adjusted with inflation will equal to $2,861.04 in today’s money, while at the age of 85 years this amount after inflation will equal to $2,344.75 in today’s money.
■ Total interest earned (before and during retirement) = $669,499.65.
■ Total contributions & savings made (before retirement by you and/or employer) = $256,000.00.
How much money do I need to retire?
Apart from using this retirement calculator to find out what effort require your life standard expectations, you can simply find out how much money you really need to save to retire by considering what financial advisors affirm.
They state that usually during payout time, in order to keep their life standards people need somewhere between 70 – 85% from their annual income before the age of retirement. For instance an individual that earns before retirement an amount of $45,000 per year, will need between $31,000 and $38,250 /year.
What to take into consideration when preparing your retirement?
Check for the most profitable financial instruments that may ensure as much as better interest or return rates.
Start saving on a monthly and yearly basis, the sooner the better.
Ensure that your employer is paying your 401k contributions.
Assess permanently whether the financial instruments you invest in are enough safe and not exposed to risks.
Establish a savings goal and try to follow it appropriately.
Take account of the inflation and adjust your goal depending on the inflation history.