Set A Retirement Goal #1 Use Case for Retirement Savings Calculators
This retirement savings calculator can help you determine how much you need to save or invest each month to reach your retirement goal.
It is very simple to use.
Let us assume you plan to have $5m at the start of retirement, with this calculator you can determine how much you should be saving monthly and investing now based on what you currently earn in order to reach that goal.
Enter your own figures below and find out how much you need to be saving monthly towards your retirement goal.
We have provided a step by step help on how to use this calculator below. If you would like to use it then click here
How To Use This Calculator
This free retirement calculator is a planning tool. That means you have to learn how to use it if you are to get the most benefit from it. Although the use case described here is an individual, with some tweaking it can also be used as a retirement calculator for couples.
Now looking at its main selling points of simplicity and practicality of use, I think it qualifies as one of the best retirement savings calculators around. In fact, for the value it gives, this version definitely compares with any of the more sophisticated ones such as the retirement calculator from AARP or this one with pension integration and spouse income.
Having said that, here are the steps to take in order to get the most out of it.
Step 1: Set Your Retirement Goals
Retirement planning is a journey.
And like every journey, if you have to arrive successfully at your destination, you need to prepare for the journey.
There are a number of goals to set. However, the number one goal to set here is how much you want to have saved by the time you retire.
Yes, it is as simple as that.
However, while you could choose just any amount, it is not that simple.
For one, the subsequent steps you take after using the calculator will depend on what figure you choose to start with. And there is a lot of thoughts that should go into that.
So how much should you plan to have at the time you retire?
The general rule of thumb is to aim live on a retirement income of between 75-85% of your income at the time of retirement.
Remember this is not of your current income, but your income at the start of your retirement.
That means if you are earning an annual figure of $250,000 at the start of retirement, you would aim to have amassed between $187,500 and $212,500 for every year of your retirement.
Now you can understand where this is headed. So With an average life expectancy of 85 for men in the US, we can be talking about saving an amount anywhere from $3,750,000 ($187,500 x 20) to $4,250,000 ($212,500 x 20) that you would need to have in your retirement savings account assuming you retire at age 65.
So pick up your calculator and work out how much you would need to retire on. And enter the figure in the field as shown below.
When do you plan to retire?
The second goal is to determine when you plan to retire. If you are 28 years old like our example below, planning for retirement at 65 years may seem like a very long time away. But trust me, before you know it, your retirement will be staring you at the face…unprepared.
That is why you need to decide today and start working towards it so you don’t get “caught out” like many others who believe they have time.
So take a moment to think about this question.
I will suggest planning for the minimum age that you can retire -62. Of course, if things change and you can achieve your retirement goals faster than you planned, then what do you have to lose? If you have done that then enter the figure in the calculator.
We have chosen a figure of 65 in the worked example
How much do you currently have in your retirement savings?
Well if you are just starting out planning, you may not have any money saved.
That is why you are reading this, to get started. So you can enter a zero value in that field.
However, if you are already on this path and you have some money already saved for example in your 401K or any other retirement account then enter the value.
We have chosen a value of $10,000 in our example.
Now if you have entered any figure other than zero, you would also need to specify an Annual Interest Rate to determine your Return on Investment (ROI). Depending on which retirement savings plan you have, this figure may be a figure between 3.3% and 5.5%. Enter the figure in the calculator.
We have used a figure of 5.5% for our worked example.
How old are you now?
The last bit of the information you need is your current age. However, if you plan to start your retirement savings in the future, you could also enter the age you would be by that date.
It is not uncommon for some people to have commitments that prevent them from being able to start saving towards their retirement. Our practical advice is to still start with some savings no matter how small. There are people who still make retirement savings alongside their student loan repayments.
If there is anything being retired has taught me, it is that there is never a good time to start saving towards retirement. You just got to start anyway.
Step 2: Gather Up All Your Data
Step 3: Do The Calculation
Now its time to do the calculation using all the data you have gathered. You do this by clicking on the “Calc” button. See the picture below. You will also see that all the different figures have now appeared.
You can then see the monthly investment required, the number of (monthly) contributions, the total amount you would have invested (contributed), the interest earned, and the estimated final value by the time you retire. Not bad.
Step 4: View Your Savings Schedule & Charts
Step 4: View Your Savings Schedule & Charts
The final step is to interpret the results.
It is possible that after setting your retirement goals and doing the calculation you find out that the expected monthly savings plan recommended is not practicable. After all the aim is not to die while planning for your retirement.
If that happens, don’t get discouraged.
Start anyway. Start from whatever it is you can afford to save now -the operative word is NOW.
The way to then continue the retirement planning is to reduce your expected savings target to say 50% for now until your income grows or until you have other sources of income to augment what you currently earn.
If you remember what we said at the start, retirement planning is a journey. And I dare say it is NOT a very short journey.
The good thing is that you can get started today and start working towards a fulfilling life of retirement.
It is not beyond you.
Other Uses Of This Calculator
Although we have discussed how to use this calculator to determine how much we need to contribute monthly towards our retirement goals, we could as well use it to also calculate how much we could be saving monthly towards a college fund or any other financial goal.
All that is required is to know how much the target goal is and work backward stating how long you want to save for and then you will be able to determine how much to contribute in monthly savings to achieve your objective.
All the information presented is for educational and resource purposes only. It is not intended to provide specific or investment advice. We don’t guarantee the accuracy of the tool and suggest that you consult with your financial advisors regarding your individual situation