Retirement Shortfall
One 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 2005.
- 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 2005, the
average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.4% per year. During
this period, the highest 12-month return was 61%, 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 2005, the
average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.4% per year. During
this period, the highest 12-month return was 61%, 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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