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Retirement Savings Calculator

You might not be able to predict the future with any certainty, but you can make plans for it. Planning for the future involves setting a retirement goal and saving money. Step one is to figure out how much savings you’ll need to live comfortably after you quit working. Once you know how much you need to have set aside, you can figure out how much to save each month during your working years.

Using a retirement savings calculator lets you see if you’re on track and where you can make adjustments to help you reach your financial goals.

What Is a Retirement Savings Calculator For?

A retirement savings calculator is a handy planning tool that lets you see how much you might end up with during retirement based on how much you save monthly now. The calculator also helps you know what changes you might need to make to your saving and spending plans based on your current age and the age at which you hope to retire.

A calculator is a useful, if underutilized, tool. According to the Department of Labor, just 40% of Americans had figured out how much they were likely to need once they retired. Using a calculator can help you see if you’re on track for retirement or if you need to make some adjustments to ensure you have a comfortable life in the future.

Retirement calculators often make several assumptions when determining the amount a person needs to save. They might assume:

• Inflation will increase by about 2 or 3%, based on historical averages.
• Your income will increase each year slightly, based on the typical cost-of-living wage increase.
• A certain rate of return, such as 5% before retirement and a slightly lower return after you retire.

Usually, you can make adjustments to the values in the calculator to better match your situation. You might change the estimated rate of return or interest rate to see how earning a higher or lower rate of return affects the amount you need to save. You can also change your retirement age to see how delaying retirement or retiring early changes your savings goals.

Once you’ve plugged your numbers into a calculator and gotten a result, you have a better idea of what, if any, changes you should make. You may need to adjust your savings plan so you end up with the estimated final value in your accounts when you’re ready to stop working.

How Much Money Do You Need to Retire?

The exact amount you need to live comfortably during retirement depends on several factors. One of those factors is how long you expect to live after you retire. The average person spends about 18 to 20 years in retirement, but some live for much longer. The longer you live after retiring, the more you’ll need to have in savings.

Another factor influencing how much money you’ll need after retiring is your current income and spending needs. Many retirees find that they need anywhere from 70%-90% of their income to keep up their living standards after they stop working.

Estimating Your Retirement Needs

You can roughly calculate your needs in retirement by considering the following:

1. Anticipated Housing Costs in Retirement

Once you retire, you might spend less on housing than you currently do, depending on your situation. If you buy a home at age 30 with a 30-year mortgage and pay the agreed amount every month for the entire term, you will pay off your home at age 60. With that, you can go into retirement mortgage-free.

You’ll still have to pay property taxes and other costs of homeownership, such as upkeep, but the overall monthly cost will be much lower. Another thing to consider is if you plan on moving to an older adult community or if you’ll eventually need to live in an assisted living facility.

2. Anticipated Medical Costs

One spending area that often increases as people get older is medical spending. You might not be able to say for sure whether you’ll develop a chronic medical condition or whether you’ll need expensive medical treatment., but you can estimate what you expect to spend on health care in retirement.

You can look at the typical costs of some of the most common chronic conditions, such as diabetes or heart disease, to get a better idea of what your expenses might be. Keep in mind that Medicare can pay for some of your medical expenses and supplemental health insurance can help fill in any coverage gaps.

3. Anticipated Spending Needs

Another thing to consider when estimating how much you’ll need in retirement is what you want to do once you stop working. Do you see yourself traveling around the world, exploring new places or visiting distant family and friends? Maybe you see yourself spending time on the golf course or finally working your way through your bookshelves. Taking on more leisure activities or traveling more in retirement than you do now affects your living expenses.

4. Additional Sources of Income

You might not need to survive on your retirement savings alone once you stop working full-time. You might have Social Security income to supplement the money you’ve saved. Alternatively, you might find that you prefer to keep working on a part-time basis and that you have some income coming in from paid work.

Adjusting Your Spending Needs

When estimating how much to save for retirement, remember that you’re estimating your individual needs, not someone else’s. You can adjust your goal up or down based on what you think you will spend each year. For example, if you make $150,000 currently, you might expect to need between $105,000 and $135,000 — 70% and 90% of your current income — once you’ve retired.

But if you currently save more than average for retirement, such as 25% of your income, you have a cushion for once you stop working and no longer need to save. If you plan on paying off your mortgage or downsizing to a smaller, lower-priced home, your housing costs will drop, meaning you’ll spend even less in retirement.

Retirement Savings Glossary

When you use a retirement savings calculator, you’re likely to see certain phrases and words that might not be familiar to you. Use this glossary to get a better sense of their meanings:

• Your current age: Your current age is how old you are right now. The calculator uses your age today to determine how many years you have left to save for retirement. For example, if you’re currently 25 and plan to retire at 70, you have 45 years of earning and saving ahead of you.
• Retirement age: Retirement age is the age you hope to stop working full-time. For people born after 1960, the normal retirement age is 67. You can also choose to keep working later, putting off retirement, to increase the amount you end up saving.
• Current savings: Your current savings is the amount you have in your retirement accounts today. Depending on your age and the progress you’ve made, it could be anywhere from $0 to several hundred thousand dollars.
• Interest rate: The interest rate is the amount you expect your retirement accounts to earn each year or month. The return on investment (ROI) is really just an estimate. Several factors, such as market conditions and where you invest your money, can affect how much your investments earn.
• Retirement goal: Your retirement goal is how much you hope to have in savings by the time you reach retirement age. You can calculate it by multiplying the number of years you anticipate living in retirement by the amount you expect to spend each year.
• Monthly investment: The monthly investment is how much you plan to save each month for retirement. The amount depends on how long you have until you retire, the expected ROI and your retirement goal. If you expect to earn a high rate of return or have many years left before retirement age, you can save less each month. Someone who anticipates a low ROI or who has fewer years left to work and save will put away more each month.
• Number (of months): The number of months is how many months you have to save for retirement. It’s calculated by multiplying the number of years between your current age and your retirement age by 12. For example, if you’ve got 45 years left before you retire, you will have 540 months to save.
• Total amount invested: The total amount invested is your monthly investment multiplied by the number of months. If you set aside $500 per month for 540 months, you’ll have saved $270,000.
• Interest earned: Interest earned is the total ROI you can expect your retirement savings to accrue over the years, based on the interest rate you expect, the amount you save and the length of savings.
• Estimated final value: The estimated final value is how much you can anticipate having in your retirement account the day you retire, as long as you maintain your savings rate and earn a steady rate of return. This final value will combine your total amount invested with your interest earned.
• Last deposit date: The last deposit date is the final day you put money into your retirement accounts before you start taking withdrawals.

Retirement Savings FAQ

As you make a retirement plan, you might wonder how your retirement planning and goals stack up to other people’s. You may have some questions about how to start saving for retirement or how much you need to set aside to meet your goals. Some frequently asked questions about retirement planning and savings include:

1. How Much Money Does the Average Person Have in Savings?

The average value of retirement savings in the U.S. was $255,200 in 2019. But people with a lot in savings can skew averages. You might get a more accurate sense of what the typical person has in savings by examining the median value, which was $65,000 in 2019.

The older a person is, the more likely they are to have more savings for retirement. Among baby boomers, the median savings amount is $144,000, compared to a median of $23,000 for millennials.

2. What Does the Average Person Retire With?

How much a person has set aside when they retire depends on their retirement age and their reason for retiring. Forty percent of baby boomers have at least $250,000 in savings. People who retire early for reasons beyond their control, such as a health issue, tend to have much less saved.

3. How Much Money Should You Save for Retirement Each Year?

How much you should save each year for retirement depends on several factors. How far you are from retirement plays a big role. If you are in your twenties, you can save less than someone who’s in their forties, as the money you save now will have years to grow. Due to compound interest, you’re likely to see a higher return on $100 saved at age 20 compared to $100 saved at age 40.

You can use a retirement savings calculator to get an estimate of what you should save every year to help you reach your retirement target.

4. How Do You Make Investing a Part of Your Financial Plan?

Working with a financial advisor is one way to get started with investing. An advisor can help you decide where to put your money. For example, if you have a 401(k) through your employer, setting aside a certain amount of your income each pay period can help make investing frictionless.

An advisor can also help you decide which type of investments are most appropriate for you based on your age, the number of years until you retire, your goals and your risk tolerance.

Talk With an Advisor Today

Your financial situation is unique, and you need advice that’s tailored to your needs. A retirement savings calculator can help you get started with your future planning. Working with a private wealth management team can help you refine your goals and make financial plans.

Fort Pitt Capital Group is a Securities and Exchange Commission (SEC) registered investment advisor and a fiduciary, meaning we put our clients’ needs first. We’ll get to know you as an individual and will consider your risk tolerance, goals and needs in every recommendation we make. Contact us today to speak to one of our advisors.