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!
About
Savings
Assets
Retirement
Results!
Screen 1: Retirement Planner Overview
You enter your age, and whether you would like to include your spouse’s income for this calculation.
Also describe whether you are saving, preparing or living in retirement. This slideshow illustrates the first case.
Screen 2: Retirement Savings
In this screen, you enter your present salary, the amount you’ve saved so far and your contributions towards retirement like IRAs and 401Ks.
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.
Screen 5: Recommendation
Based on the information you entered, the tool computes your retirement income and makes recommendations.
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.
-- Download Are You Saving Enough For Your Retirement? as PDF --
I do agree. This is a great and awesome tool for DIY investors. Honestly, I assume $0 social security for calculation purposes, just because I don’t want to rely on it.
Thanks for highlighting this tool.
Keeping SS at 0 is what I would recommend, Roshawn.
This is an excellent tool for DIY investors. I recommend it often. Explanation well done.
Thanks DIY!
Well if Social Security is still in effect in 25 years we should be ok. According to the calculator we would have a shortfall of $1,700 per month but we also have a lot of improvements to make as far as retirement planning so I think we could make that up over the next 25 years.
One thing I don’t like about calculators like this is that my huband and I have a large age difference. They never take that into account. I have to put in that I will retire at 53 because otherwise they have him working til he’s 77. They never have a way to calculate different retirement times.
In a perfect world I will retire when he does, so I base my assumptions on that.
That is a good point Ashley. You may have to use the calculator separately for you and your husband and consolidate the results.
Thanks so much for sharing such a neat tool. I wonder if I can tweak it to apply to Canadian savers? I will have to play around.
You can edit the SSN that the tool computes to whatever is the equivalent in Canada. Or better still, strive to achieve a comfortable income without relying on SS or equivalent and treat that as a bonus!
Neat! I gave it a shot, and it said that I’m on track for retirement and will have more than I need! I’m not sure with what assumptions all these calculations are made, but it seems like a nice quick look at what to expect (even though I’m 39 years away!)
That is awesome Jeffrey!
It said I’m doing pretty well and should have extra money left over to spend! I think these kind of calculator are much more accurate as you get closer to retirement though. If you are 20 years out, there are too many things that can change.
You have obviously done your homework RB40! Great to hear that!
I used it and it gave me a thumbs up. Nice find. I am a customer of TRowe but never used it. It doesn’t consider any disruption to work though. As RB40 says too many things could change between now and retirement.
Very nice SB!
My own rule of thumb is to not withdraw more than 3-4% of the portfolio per year. Pensions are just icing on the cake: good to have them, but who knows what will be there in 30-40 years.
True Kevin. It is better to exclude SSN when calculating retirement income.
Great walk-through! I can’t wait to try it out
The results are not always pleasant Christa! You’ve been warned!
Excellent resource Money Cone! We’re coming up a little short. As we approach the maximun earning years we’ll have to contribute a little extra to our retirement accounts to make sure we’re comfortable. It pays to stay on top of what you need to do while you’re young enough to change the outcome. Thanks MC.
Better know that now than during retirement! This is exactly why I like this tool. Gives us an opportunity to correct our savings shortfalls.
Neat tool. Seems like on track to live the life of Riley, assuming SS holds up. If not, we may have a few meals of Kibbles-n-Bits here and there.
Good to know 101C!
You’re right. This is an excellent tool. I suggest we use this tool annually to see how it changes year to year until you retire.
Yes, the results will vary depending upon your age and income.
I exclude social security in my calculations too. Even though I wish I could say I’ll be healthy and trouble free in my retirement years, I’m sure there will be plenty of unexpected expenses so I am staying conservative in the amount I’ll need. -Sydney
That is the key to avoid surprises. Err on the side of saving more.
Coming up short. I went conservative, but going through the process, need to max my IRA and find other streams of income. Great resource MC! You really are turning into the one stop shop for personal finance How To’s!
Thanks for pointing out this calculator – it does seem useful. One problem I have with it, though, is that it assumes that I will need to maintain my current income in retirement. As someone who saves a significant portion of my gross pay, I have no need for 100% income replacement in retirement.