A Free Online Calculator Can Help You Get Started With Retirement Planning


The concept of retirement planning is straightforward at its core. Like squirrels in autumn, hopeful future retirees save some of the nuts they collect daily to eat when the gathering season is over. But, unfortunately, we humans have a more complicated problem. Squirrels only need their stash for a few cold winter months, whereas retirees rely on it for thirty, forty, or even fifty years. Unfortunately, this distinction can make the problem appear overwhelming, leaving people frozen in indecision. Find the best age calculator.

To make matters worse, we’re bombarded with conflicting advice on investing our savings to achieve our retirement goals. Should we hire a financial advisor? Should we invest in index funds or actively managed mutual funds? What kind of investments should we make? How do we create the best portfolio to maximize returns?

While these questions are valid, they become meaningless if the fear they elicit causes us to do nothing. What matters most is saving enough money over a long enough period and making reasonable investment decisions. Take note that I said “reasonably good investment choices.” Too many people believe that successful financial planning is all about hitting “booyah” home runs on brilliant stock picks like Jim Cramer. The facts do not support this oft-repeated legend. What matters most is creating a solid plan and sticking to it.

When will I be able to get off the treadmill?

To figure out how much you’ll need to retire, you must first decide how much you’d like to spend in retirement. Next, what kind of retirement lifestyle do you want, and how much will it cost to fund it? This is by far the most crucial consideration in retirement planning.

Fundamentally, this is a tradeoff question. How much and how long should we sacrifice during our working years to be happy during our golden retirement years? When other competing factors such as children’s education, elderly parent care, and concerns about one’s health are considered, the tradeoffs become even more complicated. It’s easy to get bogged down in the complexities of it all, but as with any decision involving tradeoffs, it becomes much simpler if we understand the costs and benefits of our various options.

This is where a retirement planning tool can come in handy. A retirement calculator can assist you in experimenting with various levels of savings, retirement ages, and levels of retirement spending. You can see the costs and benefits of different retirement paths using a retirement calculator to run retirement “experiments.” Retirement planning is highly personal, and only you can determine which tradeoffs are appropriate for you and your family.

I’m all set to compute. What happens next?

Retirement calculators can provide information to assist you in making decisions about various retirement options. However, remember that these tools are not “smart,” and they cannot weigh your options. Instead, they help you with the necessary information to make sound decisions.

Most retirement planning tools require entering information such as expected savings, desired retirement age, and annual expenses you expect to incur during retirement. This information, along with assumptions about inflation, taxes, and portfolio performance, is used by the tools to estimate the likelihood that you will be able to fund your expenses for the duration of your retirement.

This likelihood of success is the tool’s way of indicating how solid your plan is. For example, if your chances of success are low, say less than 50%, you have a less than 50/50 chance of having enough money in retirement. If, on the other hand, the probability of success is greater than 90%, your plan has a perfect chance of providing the income you need during retirement.

You say, “Wait a minute, I just want to know if my plan works.”So why can’t the tool tell me?

Most advanced retirement planning tools report their results using the concept of probability. This is because most tools work by running thousands of “simulations” of your retirement. In each simulation run, the software analyzes all your retirement calculations year by year to see what happens. The run is successful when the simulation reaches the end of the plan with money to spare. Failures are runs in which the money is depleted before the end of the project. The ratio of successes to failures represents the overall success probability of your project

Still, you might ask why the planner needs to run thousands of simulations. Why doesn’t it do it correctly the first time and give me the correct answer? Long-term planning, such as retirement planning, is an imprecise science. No one knows how investments will perform, so the best anyone can do is make educated guesses. The problem with making an estimate is that it may be incorrect. As a result, instead of making one estimate, several thousand are made. Most planners do this by looking at how investments have performed and then estimating what might happen in the future as your retirement plan unfolds. They repeat this process, recording the results of each “run.” The results are then summarized by displaying the overall probability of success for the plan.

Okay, I understand; let’s begin simulating my retirement.

Once you understand what a retirement planning tool does and how to interpret its output, you’ll be well on your way to using it. Although there are several good tools in this space, we’ll concentrate on one for the rest of this article, which is freely available on the Internet and runs inside your web browser.

The flexible retirement planner is the name of the tool. As I evaluated my retirement plan, I created this tool for myself. Other tools I tried were too simple or didn’t provide enough information about how they worked for me to trust them. As a result, I also made the source code of this tool available (see the website) so that anyone can examine how the planner computes its results. You’ll be relieved to learn that the device is ee to use and does not require you to sign up for anything or provide personal information. Furthermore, all data entered into the planner remains on your computer and is not transmitted to the Internet, ensuring your information remains private.

Set up the retirement planner by following the steps below to assess the viability of your retirement plan.

1) Age – Enter your current age.

2) Retirement Age – Enter the age at which you intend to retire. This is the age when contributions cease, and withdrawals from savings begin.

3) Leave the Life Expectancy, Inflation, and Tax Rate information in their default settings.

4) Current Taxable Investments – Enter the total current value of all invested assets NOT in a retirement account.

5) Current Tax-Deferred Investments – Enter the current total value of all tax-deferred investment accounts, such as those in a 401k or an IRA.

6) Current Tax-Free Investments – Total the value of all tax-free investment accounts, such as Roth IRAs or Roth 401ks.

7) Leave the Minimum IRA Withdrawal Age as is.

In the following three fields, enter your expected annual savings. If you’re unsure what to put in this field, enter 15% of your ayearlyhousehold income in the “Tax Deferred Annual Savings” field. You can change this later. Please remember that the amounts you enter for yearly retirement savings, like most other values in the calculator, are automatically increased each year to keep up with inflation.

8) Taxable Annual Savings – Enter the amount you intend to save in taxable accounts each year. (not IRAs or 401ks).

9) Tax Deferred Annual Savings – Enter the amount you intend to save in traditional IRAs and 401k accounts each year.

10) Tax-Free Annual Savings – Enter the amount you intend to save in Roth IRAs and Roth 401ks each year.

11) Investing Style – For the time being, leave this input at its default value. You might want to experiment with different values for this field later on. After you’ve finished evaluating your plan, the next step will be learning about investing and how to build an investment portfolio to help you meet your plan’s objectives.

12) Annual Retirement Income – Enter the annual income you expect to receive while retired. This should include any social security and pension income that you anticipate receiving. Please remember that the value you enter in this field is assumed to rise each year to keep up with inflation. If you have a fixed-payment pension, enter it as a pension with “no cola” or no cost of living adjustment in the “additional inputs” tab.

13) Retirement Income Start Age – Enter the age at which you expect to begin receiving the income amount specified in item 12 above.

14) Annual Retirement Spending – Estimate how much you expect to spend each year of retirement. The amount you enter should be in the current currency. It will be adjusted each year automatically to account for inflation. If you don’t know what to put here, some say 85% of your pre-retirement spending is a good starting point. This input requires careful consideration to make the most accurate guess possible.

15) Spending Policy – Leave this value at its default value. However, after you’ve played around with the planner for a while, you might want to read the spending policy documentation to learn more about what this means.

Okay, now I’m completely prepared. Please show me the cash!

After you’ve completed the preceding steps, you’re ready to run the planner. When you click the “Run Simulation” button, the software will run through your retirement 10,000 times to estimate your chances of having enough money to fund your retirement.

The first thing to notice after the computations are finished is the “Probability of Success.” A green light appears next to it if this value is greater than 90%. If you’ve estimated all of the inputs correctly and your plan has a greater than 90% chance of success, you’re in good shape. The stoplight will turn yellow if your chances of success are between 75% and 90%. This is also a good chance of success, but it also means your plan has a 10-25% chance of failing. Finally, if your plan’s success probability is less than 75%, you have a one-in-four chance of running out of money during retirement.

You might want to look at some of the other simulation outputs to evaluate your strategy further. The ending portfolio balance shows how much money you’ll have in savings at the end of your plan (in today’s dollars). Finally, you can view your plan’s year-by-year data by selecting the “Detailed Output” tab.

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