How Much Do I Need to Retire?

• Turns an income goal in today's dollars into a nest egg at your retirement age, allowing for inflation, Social Security timing and the years you need it to last.
• Compares the nest egg with where your current savings and contributions are heading, and shows the gap or surplus.
• Solves for the monthly saving that fully funds the plan, and cross-checks the answer against the 4% rule.
• Charts the balance building up to retirement and being drawn down, in today's dollars.

How to use this calculator

Enter your age, the age you want to retire, and the yearly income you want in today's dollars. Add your Social Security estimate (from your statement at ssa.gov), what you have saved and what you save each month. The calculator does the rest. Under Advanced you can add other income such as a pension, set the age Social Security starts, choose how long the money must last, change the returns and inflation, raise your saving each year, and set a tax rate on withdrawals if your goal is after-tax income.

How the nest egg is worked out

Need from savings in year t = (income goal - other income - Social Security) / (1 - tax rate)
In retirement dollars = need x (1 + inflation)^(years to retire + t)
Nest egg = sum of each year's withdrawal / (1 + return in retirement)^t
Projected savings = savings x (1 + return)^years + monthly saving compounded monthly
Required saving = (nest egg - grown savings) / growth of $1 a month

Withdrawals are taken at the start of each year, and what remains keeps earning the retirement return. Social Security and other income are assumed to rise with inflation. Social Security counts only from the age it starts, so retiring before then makes the withdrawals larger in the early years.

A worked example

A 35-year-old wants $70,000 a year in today's dollars from age 67 to 95. Social Security is estimated at $24,000 a year, so savings must supply $46,000 a year in today's dollars. Inflation of 2.5% lifts that to $101,373 in the first year of retirement 32 years from now.

Drawing that income to age 95 with 5.0% returns in retirement takes a nest egg of about $2,089,262, or $948,046 in today's money. With $100,000 saved, $600 a month, and 7.0% before retirement, savings reach about $1,690,247. That is 81% of the target, a shortfall of $399,015. The monthly saving that closes it is about $892, which is $292 more than now. At the current pace the money would last to about age 87.

Saving $1,500 a month instead leaves a surplus of $829,065.

The 4% rule cross-check

The 4% rule says you can withdraw 4% of your portfolio in the first year of retirement and raise that amount with inflation each year, and the money should last about 30 years. It comes from William Bengen's 1994 research on U.S. market history, using stock and bond portfolios and ignoring taxes and fees. Turned around, you need 25 times the first year's withdrawal.

In this example the first-year withdrawal is $101,373 (counting the full Social Security estimate), so the rule gives $2,534,320. The detailed model gives $2,089,262, which is 18% lower. The difference is the longer horizon, the return you enter, and the fact that Social Security begins on a set date. The first-year withdrawal rate implied by the detailed answer is 4.85%. A retirement of 40 years or more usually calls for a lower rate than 4%.

What moves the answer most

The income goal, retirement age and return matter most. Cutting the goal to $50,000 drops the nest egg to $1,180,887. Retiring and claiming Social Security at 70 instead of 67 reduces it to $2,074,843, because there are fewer years to fund and you have more years of saving. A lower return before retirement of 5% instead of 7% lifts the saving needed to about $1,745 a month. Small changes in assumptions compound over decades, so run a few cases rather than relying on one.

Entering Social Security

Use the estimate on your my Social Security statement for the age you plan to claim, in today's dollars. Full retirement age is 67 if you were born in 1960 or later. Claiming at 62 pays about 70% of the full benefit, and waiting until 70 pays about 124% of it. The calculator lets you set the start age between 62 and 70, so the estimate you enter should match. Social Security's finances are a matter of public debate, so some people test a smaller figure as a cautious case.

Choosing an income goal

The income goal drives everything, and it is easy to get wrong. A common starting point is 70% to 80% of your pre-retirement income, on the idea that you no longer save for retirement, pay payroll tax or commute. Many people find that is too simple. A better method is to list what you expect to spend: housing, food, health care, travel, insurance and gifts, and then add taxes. Include a mortgage only if it will still be running. Health care is the line that surprises people most, because Medicare premiums and out-of-pocket costs rise with age.

Remember that the goal here is in today's dollars. If you currently live on $60,000 and expect to spend about the same, enter $60,000, not a larger number that tries to allow for inflation. The calculator does the inflation step for you.

Choosing returns and inflation

The return before retirement is the growth you expect while you save, and the return after retirement is lower because most people hold more bonds and cash. A gap of about two percentage points between them is typical in planning. Inflation is the rate prices rise each year; 2.5% to 3% is a common planning figure, though actual inflation has been both far higher and lower in different decades. What matters most is the difference between the return and inflation, the real return. If you believe real returns will be low, use a lower return or a higher inflation figure and look at how much the monthly saving needed rises. If the plan only works at optimistic figures, it is fragile.

Ways to close a gap

If the calculator shows a shortfall, there are four main levers, and they work best in combination.

• Save more. In the example, the saving needed to fully fund the plan is $892 a month. Raising the amount each year with a pay rise, using the Advanced setting, makes that easier to reach.
• Work longer. Delaying retirement to 70 and claiming Social Security then lowers the nest egg to $2,074,843, and cuts the saving needed to $589 a month.
• Spend less. A goal of $50,000 instead of $70,000 lowers the nest egg to $1,180,887.
• Earn a bit in retirement. Part-time income, a pension or rent can be entered as other income.

Chasing a higher return is the lever most likely to backfire. Moving into riskier investments to hit a target can lead to a bigger loss at the wrong time.

Why averages hide risk

The calculator uses one steady return for every year. Real returns arrive in a random order, and the order matters once you start withdrawing. A big market fall in the first few years of retirement forces you to sell more shares at low prices, and the portfolio may never recover, even if the long-run average turns out fine. This is called sequence-of-returns risk. It is one reason planners suggest a margin of safety: aim a little above the nest egg shown, keep a cash buffer of a year or two of spending, and be ready to trim spending after a poor year.

What to do after you have a number

Treat the nest egg as a target to check once a year, not a finish line. Find out whether your employer plan has a match and capture all of it first. Use the tax-advantaged accounts available to you, such as a 401(k) and an IRA. Review your Social Security statement for errors. Then redo the calculation with updated balances, and see if the monthly figure is still within reach. If the number seems out of reach, a fee-only financial planner can help you test options such as later retirement, part-time work or downsizing.

Assumptions and limitations

• Steady returns. Real returns come in an uneven order. Poor returns in the first years of retirement can hurt much more than the same average spread evenly.
• Inflation is constant. Costs such as health care can rise faster than the general rate.
• Spending is a straight line. Real spending often falls with age, then rises with care costs. The calculator keeps the goal level in real terms.
• Income is indexed. Social Security and other income are assumed to keep pace with inflation. Many private pensions do not.
• Taxes. The goal is treated as the amount withdrawn unless you set a tax rate. Social Security is partly taxable for many people.
• No leftover estate. The plan aims to end near zero at the age you choose.

Common mistakes

Forgetting inflation. A goal of $70,000 today needs far more in 32 years.

Counting on Social Security from day one. If you retire before it starts, savings must bridge the years in between.

Using a high return for the whole plan. After retirement most people hold more bonds, so the return is lower.

Planning to age 85. Plan to 95 or beyond if you are healthy and have a long-lived family.

Waiting to save. The monthly saving needed rises sharply as retirement gets closer, because the money has less time to grow.

Frequently asked questions