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Retirement Savings Calculator: See How Much You Should Save

Reviewed by:
Dan Casey
Dan Casey

Dan Casey

Vice President

Vice President, Financial Planner, and Portfolio Manager at Arrowroot Family Office. I manage clients’ investment portfolios and help them find solutions and optimal strategies for their financial needs. In addition to my passion for finance, I am an exercise physiologist with over a decade’s experience.

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Retirement Savings Calculator

Retirement Intro

Retirement is referred to as the point in time an individual chooses to leave the workforce permanently or semi-permanently behind. Retirement is a common occurrence for most individuals in the United States and most developed countries. Individuals often retire, permanently or semi-permanently, between the ages of 62 and 67.

An individual is able to retire through savings plans and investment strategies in order to gain enough money to live without the need to work. Many nations also have national pension or benefits programs and systems in place to supplement a retiree’s income to help assist them with their retirement savings and investments. In the U.S., this system is called Social Security.

In order to leave the workforce and retire with partial Social Security Benefits, individuals often wait until the required age of 62 to receive those benefits. However, in order to receive full Social Security benefits, individuals are required to wait until the age of 67 before they consider giving up work. The full benefits that Social Security can provide to individuals vary based on individual income and other specific factors. Once an individual retires, Social Security may become the only source of active income retirees may receive besides the income received from the sale of investments or assets. This is why these specific benefits need to be explored to their fullest potential when planning for retirement, as Social Security could be labeled as one of the most important aspects of one’s retirement strategy.

Table of Contents hide
  1. Retirement Intro
  2. Retirement Strategies
  3. Retirement Savings Calculator Intro
  4. FAQs

Retirement Strategies

When saving for retirement, individuals often have access to the following three saving and investment strategies in order to plan for retirement. These strategies include employer-sponsored retirement plans such as a 401(k), retirement savings such as various investments (IRA), and Social Security retirement benefits.

A 401k retirement plan is an employer-sponsored retirement savings plan offered to most employed individuals in the United States. This plan has tax advantages that provide cost-saving benefits to individuals saving for retirement. Once a particular employee signs up for a 401(k) retirement account, the individual agrees to deduct a small percentage of their paycheck directly into a retirement investment account. The employer then has the opportunity to match a part or all of that contribution.

An IRA, or an Individual retirement account, is a tax-deferred investment account created to help individuals of all kinds save for their retirement. An IRA provides similar tax benefits and advantages to a 401k and promotes long-term incentives to invest and save for retirement. With an IRA, the selection of mutual funds and stocks is endless, and individuals have the ability to invest their funds on their own, with a financial advisor, or with a Robo-advisor platform.

Retirement Savings Calculator Intro

In order to efficiently explore all savings and investment strategies, it is essential to be able to use online tools, such as Retirement Savings Calculators, in order to plan for one’s retirement effectively. Retirement Savings Calculators can help individuals gauge the amount of funding needed to comfortably retire based on their yearly income, current age, predicted retirement age and time horizon, current available retirement savings and investments, average rate of return on investment, inflation rate, expected Social Security income, and potential monthly pension and rental property income.

When saving for retirement, determining how long an individual may live past the point in which they stop working is essential to plan for retirement properly. Ensuring that an individual and their family do not deplete all of their available funds in their lifetime is crucial, so proper retirement planning is important for a good quality of life post-retirement. On average, an individual may live 15 to 20 years past the average retiring age of 65. With proper health, dieting, and exercise, that figure could increase by another 10 years or more. Financial planners and advisors recommend saving 70% of one’s pre-retirement income per year for their retirement. In other words, an individual earning $100,000 per year in annual salary as an employee should save at least $70,000 as annual available income in retirement. This allows for individuals to live a comfortable life in retirement and ensures that enough money is saved up or invested in order to have savings to fall back in case there are extra unaccounted expenses during one’s post-working days.

Every individual and family’s time horizon is different, so planning accordingly by creating a customized plan and strategy is essential. A Retirement Savings Calculator could help individuals do just that by giving individuals an accurate estimation of how much savings is needed for retirement based on the amount of funding already saved up and the approximate age the individual wishes to retire in.

When looking at a Retirement Savings Calculator, the following parameters will be set for individuals to fill out with their personal information.

  • Current Age
  • Current Income
  • Current Retirement Savings
  • Percentage of Current Income Invested Annually
  • Expected Annual Income Increase (Annual Raise Percentage)
  • Expected or Planned Retirement Age
  • Expected Life Expectancy
  • Expected Social Security Income
  • Other Income After Retirement (Such as monthly pension income or rental property income)
  • Expected Average Return on Investment
  • Expected Annual Inflation Rate
  • Expected Annual Income Needed After Retirement (Recommend 70-80% of pre-retirement income)

Once all information is filled out within the prompted parameters, the individual can then calculate the amount needed for retirement. Depending on the calculator, it may give varying levels of information or even graphics displaying the savings needed for retirement. Some calculators give a breakdown of the retirement income needed at various stages of retirement. For example, individuals can get a monthly income breakdown for the ages 65, 75, and 85, on top of an overall figure of total retirement funding needed by each of those ages. These monthly income breakdowns can also include the amount earned or received from savings, social security income, and other investment income streams such as monthly pensions or rental property income. Other calculators can also display expected annual withdrawals, impact of yearly inflation on the amount needed for retirement, annual contributions needed to achieve one’s financial retirement figure, the amount heirs could potentially inherit after one’s passing, and the final age at which one’s retirement fund could last till, along with detailed graphics, charts, and tables.

These tools and calculators are especially helpful when planning for one’s retirement and should be used as a useful resource when sitting down with loved ones or financial planners and advisors to get a rough estimate of how much funding is needed for one’s retirement.

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FAQs

The 70% rule for retirement states that an individual needs to save 70% of their yearly income over their working life in order to live comfortably in retirement. For example if Jim earns $100,000 per year in annual salary as an employee, he should save at least $70,000 as annual available income in retirement. This will allow the individual to live a comfortable retirement.
The 4% rule is relatively simple; it states that if an individual were to add up all of their investments and assets into an estimated total, the individual could then safely withdraw 4% of the calculated total during their first year of retirement. For all subsequent years, the individual in question would adjust the withdrawal amount to account for annual inflation.
The average 401(k) balance, shown by Vanguard’s data, displays that for workers 65 and older to be $279,997, while the median balance is $87,725.
The 90/10 retirement investing strategy, invented by legendary investor Warren Buffett, states that 90% of one’s investment capital should be invested into stock-based index funds while the remaining 10% of one’s funds should be allocated toward lower-risk investments, like real estate or bonds.
A good retirement income recommended by financial advisors and financial planners is about 80% of your pre-retirement income before leaving the workforce permanently. For example, if one’s pre-retirement income was $5,000, then that individual should aim for a post-retirement income of $4,000.
The typical age most individuals retire is around 65 to 66 years of age. This is the age that most individuals are able to draw on full Social Security retirement benefits. However, due to special circumstances, it may make sense to retire earlier or later depending on the financial situation and the needs and goals of the individual.
Based on a proposed withdrawal rate of 5% and an income replacement ratio of 75% of an individual’s annual salary, the amount of funding that is required for that individual’s retirement exceeds 15 times their final annual salary pre-retirement.
The 25x Rule is an estimate of how much an individual would need to save for retirement. If one were to take the total amount of expenses one were to spend each year in retirement and multiply it by 25, then that would be the total amount needed for that individual to have a comfortable retirement.
  1. https://financial-calculators.com/retirement-calculator
  2. https://www.calculator.net/retirement-calculator.html
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