Retirement Planning Calculator

A retirement planning calculator is a great tool for determining how much you need to save each year to achieve a comfortable lifestyle after you retire. Using a retirement planning calculator can keep you focused by giving you a solid target to reach while you work with a personal finance advisor to create an overall plan for savings and investing. Remaining actively involved with your finances as you seek professional guidance can help you stay motivated and engaged as you start planning for retirement.

Benefits of a Planning Calculator

A retirement planning calculator offers many benefits, particularly for people who feel like they aren't great with numbers or don't have financial expertise. Most online calculators are intuitive and easy to use, allowing you to simply plug in different factors such as your income and current retirement savings to see how much you'll have to set aside each month to retire comfortably or how long it might take you to reach your ultimate retirement figure. A financial planning advisor can help you examine these figures and determine what goals are realistic for you as well as what actions you need to take to reach your target figure.

A retirement planning calculator also lets you easily examine different scenarios so you can see how a variety of decisions might affect your future. For example, if you save a seemingly insignificant $20 per month, you can see how this added savings will change your overall balance after the effects of compound interest. Or you can see the benefits working an extra year beyond your target age to retire. Being able to examine how different actions might affect your future can make a big impact on how you make decisions. A final benefit of a retirement planning calculator is simple cost-effectiveness; calculators are often free and easy to find online.

How a Retirement Calculator Works

A retirement planning calculator can take many factors into account, depending on which site you use and whether you select a condensed or detailed version. Every calculator asks for a few pieces of basic information, including your birth year, life expectancy, salary, amount currently in savings and how long you intend to work before you retire. You might also include expected increases in your annual salary and what percent of your income you are planning to live on after you retire. A more elaborate calculator might also factor in your social security, 401k balance and other more detailed questions about your investments to calculate the different yields of each one over time.

To better understand how a retirement planning calculator works, consider Mr. Dennis, a 42-year-old marketing executive who currently makes $80,000 a year. Mr. Dennis wants to determine how much money he needs to put away to live on 80 percent of his current salary after retiring at age 65. He has a 401k valued at $40,000, to which he now contributes 5 percent of his income with a 50 percent match from his employer. He has an IRA from a previous job valued at $30,000. Using an online planning calculator, Mr. Dennis first enters his birth year and life expectancy, which he optimistically estimates at 93. He sets his expected annual raise at 3 percent to keep pace with inflation, and enters $64,000 for his desired income once he retires.

Entering all these factors, Mr. Dennis quickly determines that to achieve his desired standard of living, he needs to build his nest egg to $761,483, or the equivalent of $1,502,853 in his target retirement year. Mr. Dennis can also quickly see that he has only a 22 percent chance of reaching his goal. He either needs to readjust his standard of living expectations, or he must make much bigger contributions to his nest egg. Fortunately, Mr. Dennis doesn't have to determine the best course of action on his own. A trusted financial advisor can use his retirement planning calculator results to show him where he might need to be more realistic and what he can do to make his long-term dreams a reality.

Choosing a Financial Advisor

A retirement planning calculator can be useful on its own, but you can greatly enhance the benefits of a calculator by working with a trusted financial advisor to interpret the outcomes of different scenarios. A financial planning advisor can also help you determine what information you need for the most accurate results. Researching financial planners online can give you a good idea of trusted advisors in your area who have specific experience in helping people save enough money to retire comfortably. A good financial planner should also have the ability to make you feel comfortable explaining your long-term goals, along with excellent communication skills to help convey the best strategy for you to achieve your dream retirement.

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