Read on to learn a little more about how to use the retirement savings calculator and a few factors you should consider when investing for the future.
Why Use a Retirement Calculator?
Using a calculator for retirement is a simple and more accurate way to plan for the future based on the progress you've already made in your investing career. A retirement calculator provides a comprehensive and accurate assessment of your financial readiness for retirement. It considers various factors such as income, expenses, savings, investments and retirement goals to show where you stand.
You can customize a retirement calculator to fit your unique needs and goals for retirement. For example, MarketBeat allows you to set specific retirement goals based on your desired lifestyle and the age at which you wish to retire. The calculator helps you determine the savings targets required to achieve those goals, allowing you to make informed decisions and take appropriate actions to get there.
Using the MarketBeat Retirement Calculator
Every investor's goal is a comfortable retirement. The MarketBeat retirement calculator is a dynamic tool that you can use to calculate how much you'll need to invest each year to meet your retirement goals based on current investments. If you still need to start investing for retirement, the retirement savings calculator can also tell you how much you'll need to save to catch up based on your goals.
How it Works
How can I calculate my retirement income and savings using MarketBeat's calculator?
The MarketBeat calculator uses a series of data points to assess current savings and decide how you'll need to invest to achieve your goals.
Begin by inputting a few personal details about your age, the age you wish to retire and how much you can afford to invest a month. You'll also input data on your current investments, the average annual rate of return on the investments you select and withdrawal rates during retirement. The MarketBeat calculator allows you to input unique values or use the standard average 6% annual return and 4% annual withdrawal rate during retirement.
Image text: The MarketBeat retirement calculator helps you calculate the amount you’ll need to invest toward retirement each year.
Definitions to Know
Before you start with the retirement calculator, there are a few key definitions to ensure you get the most accurate data.
- Current savings: Current retirement savings include all accounts and the liquidatable property you have set aside for retirement. Be sure to include both employer-sponsored accounts as well as individual brokerage investments.
- Expected investment rate of return: Expected rate of return is calculated as an annual percentage return. The stock market has traditionally returned an average of 6% annually when considering the cost of inflation.
- Retirement income: Your desired annual retirement income should include all ongoing payments, including housing, healthcare and insurance needs. Social Security benefits can help supplement retirement income.
Image text: The retirement calculator also illustrates how your current investments will support ongoing income needs.
How to Interpret the Results
The retirement income calculator can show you where you are on the path toward retirement. If you've been investing for years and want to know if you can retire before age 65, the retirement calculator can tell you your current and projected retirement income. Conversely, if you are just now getting into the market, the calculator can help you determine how much extra you'll need to invest to catch up with your peers.
How Much Do You Need to Retire?
The amount of money needed to retire for you personally will vary on various factors, including lifestyle expectations, expected retirement age, location, healthcare needs and more. Long-time financial advice dictates that you should expect to maintain an income of about 70% of your working income during retirement.
How is retirement income calculated? A common rule of thumb used in the MarketBeat calculator is the 4% rule. This rule says you can withdraw 4% of your retirement savings in the first year and adjust subsequent withdrawals for inflation.
For example, if you need $50,000 annually in retirement, multiply that by 25 (1 divided by 0.04) to arrive at a target retirement savings of $1.25 million. This estimate can be used as a general goal when planning retirement.
Factors that Can Affect Your Retirement Amount
In addition to the amount you're investing annually, other factors play a role in the amount of money you'll need by the time you retire. Consider the following when setting a goal for monthly investments.
Healthcare expenses tend to increase with age, so it's crucial to account for potential medical costs in retirement. Consider the cost of insurance premiums, co-pays, prescription medications and long-term care. Healthier individuals may require fewer healthcare expenses, while those with pre-existing conditions or specific healthcare needs may have higher costs.
Keep in mind that your investing vehicle plays a direct role in the amount you'll pay in taxes during retirement. If you're investing through a traditional retirement account, you'll need to consider the taxes that will be withheld from your investment funds when you withdraw them. If you're investing through a Roth account, you'll have more flexibility in making tax considerations.
Inflation erodes the purchasing power of money over time. When calculating your retirement needs, it's important to account for inflation and adjust your expenses and savings target accordingly. You can consider an average inflation rate of around 3%. Investing in alternative assets tends to hedge inflation (including real estate investments and leveraged loans) and can help reduce the overall impact of inflation on your portfolio.
Consider the expected income from Social Security or any employer pension plans you may have. These sources of retirement income can help offset your expenses and reduce the amount you need to save independently. Consult an HR representative if you need more clarification about company pension offerings.
How to Boost Your Retirement Savings
Whether you're approaching retirement age or just getting started in the market, boosting your retirement savings improves your long-term retirement income. The following are some easy ways to boost your retirement savings.
Step 1: Maximize accounts.
Did you know that you can have multiple types of retirement accounts? Consider opening a supplementary account if you've maxed out a retirement account like your employer-sponsored 401(k). IRAs, HSAs and taxable brokerage accounts are all options if you can no longer make tax-deductible contributions to an employer-sponsored account.
Step 2: Take advantage of employer match programs.
When calculating retirement income, take advantage of your employer's match programs. Some employers will match a percentage of your contributions to employer-sponsored accounts up to a certain percentage of your income. Consult with your employer's retirement team, and max out your match percentage if possible — it's free money with no downsides.
Step 3: Diversify your investments.
A diversified portfolio can help protect you against excessive losses if the market takes a sudden turn. To diversify your investments, assess your current holdings and consider complementing assets from different classes you can add. For example, consider adding a few penny stocks or alternative assets like gold if you have a portfolio of blue-chip tech stocks. Be sure to concentrate most investments in significant, low-volatility investments like mutual funds.
Step 4: Start now.
The best way to maximize your retirement savings is to start investing in the market as early as possible. Investing early and often gives you more time to ride out the ups and downs of the market, allowing you to invest in more volatile assets with safety. Avoid "timing the market" or waiting until you think the market will decrease in value before investing for retirement.
Examples of Retirement Calculations
Let's use the MarketBeat retirement calculator to help you answer the question, "How much do I need for retirement?" Imagine you're 25 and want to retire at 65 with $2 million in assets. Assuming standard returns and use of funds, the retirement calculator tells us you'd need to invest at least $1,100 monthly throughout your career to reach your goal.
Image text: Investing $1,100 a month as a 25-year-old will leave you with about $2 million in assets by the time you reach retirement age.
To illustrate the importance of investing early, let's calculate how much a 45-year-old employee will need each month to meet the same goal. With no savings or investments, this employee has 20 fewer years to invest than the person in our previous example. You'd need to invest $4,500 per month at this age to retire at age 65, and you'd still have more than $40,000 less than the younger investor by the time you stop working.
Image text: A 45-year-old investor will need to invest at least $4,500 per month to retire with $2 million in assets.
Benefits of Retirement Calculators
Retirement calculators help you learn how to calculate retirement income and plan for the income you'll need after you stop working.
- Realistic projections: Retirement calculators use advanced algorithms to project your future retirement income based on your current savings and other variables. These projections provide a realistic estimate of your retirement funds, enabling you to adjust your savings and investment strategies accordingly.
- Comprehensive financial analysis: A retirement calculator goes beyond just estimating your retirement income. Most calculators also consider factors such as inflation and the amount you'll need to withdraw as you age. This comprehensive analysis helps you understand the broader financial implications of retirement and make informed decisions regarding asset mix.
- Free assistance: Retirement payout calculators like MarketBeat's are free to use, meaning there's little downside to testing one out.
Limitations of Retirement Calculators
While retirement calculators are free and useful tools, there are better solutions for comprehensive retirement planning. They often have the following limitations:
- Assumptions and specifications: Retirement calculators rely on certain assumptions and simplifications to provide estimates. For example, while the stock market has historically returned an average of around 6% annually, 2020 through 2023 proved that these returns are not in any way guaranteed. Retirement calculators cannot take these nuances into account.
- Inflation variability: While retirement calculators include inflation adjustments, the actual inflation rate can vary over time. It's challenging to accurately predict future inflation rates and even small deviations from projected inflation can significantly impact the purchasing power of retirement savings.
- Personalized factors: Retirement calculators cannot capture every individual's unique financial situation, goals and preferences. They provide generalized estimates based on aggregated data and assumptions; if you need specific advice, there's no replacement for a financial advisor.
Alternatives to Retirement Calculators
While retirement calculators can be helpful, they're not the only option when planning retirement. You can also consider:
- Financial advisor: Consulting a financial advisor or retirement planner can provide personalized guidance tailored to your specific financial situation and goals. They can help you develop a comprehensive retirement plan, considering factors such as income and your unique risk tolerance level. A financial advisor can also help you navigate changing circumstances and provide ongoing support and advice.
- Multiple calculators and tools: Rather than relying on a single retirement calculator, you can use multiple calculators and tools to get a broader view of your retirement savings needs. Different calculators may use different assumptions or methodologies, so using various tools can help you compare results and identify discrepancies. If you prefer a DIY retirement savings approach, self-guided investing could be right for your goals.
Investing for Retirement
Even if you're just starting your career, putting aside a small percentage of your paycheck each month for retirement can be a good idea. As you can see on the retirement calculators, investing early and consistently is the key to saving more for retirement. Allow yourself more time to ride out volatility — and see how much a small monthly contribution can mean for long-term investing.
The following are some additional answers to questions you might have about retirement.
How do you calculate retirement income?
To calculate retirement income, you need to consider all potential sources of income during retirement. From here, you can use a retirement calculator to calculate how much you'll need to invest to meet your goals based on your income. Most investment experts recommend planning to spend about 70% of your working income during retirement, which can give you a figure to shoot for when planning.
How much money do you need to retire with $100,000 a year income?
To determine how much money you need to retire with a $100,000 annual income, you can use the 4% rule as a guideline. According to this rule, multiply your desired yearly income by 25, which assumes a 4% annual withdrawal rate. In this example, you'd need about $2.5 million in assets to retire and maintain an income of $100,000 per year.
What is the 70% rule for retirement?
The 70% rule is a general investing guideline that says you should aim to replace 70% of your pre-retirement income each year before retirement. If your pre-retirement income is, for example, $100,000 per year, you would aim for a retirement income of approximately $70,000 per year.