You do the usual, contribute to your 401K, you max out your IRA, you save and invest every month what you think is a pretty decent amount. But, at the present rate, if you were to retire at 65, can you tell what your income would be? Most don’t have a clue!
To be fair, this is not an easy exercise. You have to make a number of assumptions which may or may not hold up at the time of retirement, including Social Security cuts. But not having any idea whatsoever could be disastrous. Have a ballpark, a scientifically computed ballpark to go by so that you can adjust your savings rate accordingly.
In this post I’m going to show you how to find out what your income will be at retirement, if you continue saving what you are currently saving. No, no worksheets or spreadsheets or complicated calculations! Not on this blog! I want to highlight a FREE Retirement Income Calculator I found very useful.
The calculator is from the investment broker T. Rowe Price. But you don’t need to have an account there in order to use the tool. You don’t even need to register. Best of all, the tool is free!
In less than 5 minutes, you’ll know if your savings rate is enough for a comfortable retirement.
To illustrate this tool, I’ve taken a hypothetical example of a single male in his 30s, earning an income of $80,000, who wants to know how comfortable his retirement will be at his current savings rate.
Check out the slideshow below.
Retirement Income Calculator Slideshow
Click on the image to advance to next screen. If you are reading this on a RSS reader, visit this page and enjoy the slideshow!
Also describe whether you are saving, preparing or living in retirement. This slideshow illustrates the first case.
Screen 3: Asset Allocation
Asset Allocation is the distribution of your investments across various asset classes. With the first slider, you set you present allocation. The second slider is the projected allocation. Asset allocation changes with age. The closer you are to retirement, you take on less risk.
Screen 4: Social Security
The last screen computes your social security based on the current limits. You can either adjust this amount or not take SSN into consideration. I’ve left the number as computed by this tool.
At a glance, you’ll know if there is a shortfall and how much more you need to save, or adjust your asset allocation to achieve a comfortable income during retirement.
Whether you are preparing for retirement or saving for retirement or living in retirement, this is a great tool to identify and correct shortcomings.
The tool makes a number of intelligent assumptions and future returns are based on Monte Carlo simulations which take future uncertainty into account, not just averages based on historical returns.
Excellent free tool for the Do-It-Yourself investor!
Disclaimer: Not an endorsement of T. Rowe Price. Not a paid review.