Advantages of Utilizing Retirement Income Calculators
Using a retirement calculator offers many great advantages. Here’s a look at some of those:
- Estimated monthly income so you can decide whether that makes a comfortable lifestyle
- Easy way to move numbers around to see how the total changes when you make adjustments to savings rates
- Fast, easy way to check in on your retirement savings
- Simple to use regularly or when you go through a major life event, such as a job change, relocation or new home
- Helps plan for what-if scenarios
- Aids in staying on track with retirement savings at all phases of life
- Can guide you toward changing your strategy to find the best investments for retirees to achieve your goals
Disadvantages of Retirement Income Calculators
While you’ll gain many benefits from using a calculator to estimate your retirement income based on current factors, be aware of these disadvantages:
- Can’t replace working with a financial adviser to review your income and needs with an expert
- Doesn’t factor in special situations, like helping pay for a child’s college, work disruptions or job loss
- Won’t factor in career growth and advancements you’re hoping to achieve over the years, which will increase your lifestyle and might lead to great monthly retirement savings contributions
- Can’t use family data and history to know your estimated life expectancy
- No entry for unusual expenses, such as caring for a family member long-term or additional household members who are not contributing toward a retirement account
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How To Calculate My Retirement Income Manually?
You should regularly calculate retirement income based on your current savings rates and lifestyle preferences. This will help ensure you stay in line with your lifestyle preferences once the time comes to retire. You’ll follow several steps to calculate this income manually.
- Review your pretax income: Check your pay stubs for your total income before taxes or expenses, like health insurance or parking. When completing this calculation, be sure to include all income sources, including side hustles.
- Add up your existing retirement savings: Log into all retirement savings accounts to find your total retirement savings. This includes employer-sponsored 401(k) plans as well as individual retirement accounts (IRAs) and other investment vehicles.
- Calculate Social Security: If you’ve been paying into Social Security, review what your estimated monthly payout will be in retirement.
- Find your existing monthly contribution amount: While you’re reviewing your investment accounts, add up how much you and your employer are contributing to your account monthly. Ideally, you should be contributing 10% to 15% of your pretax income.
- Calculate how much you’ll need each month in retirement: To do this, you’ll need to review your existing expenses and see how they might change in retirement. For example, you can estimate healthcare expenses based on premiums for Medicare compared with what you currently pay each month. And consider whether your mortgage will be paid off by the time you retire and how much travel you hope to do. This will tell you whether you need the same amount each month as you’re currently making or can scale up or down a bit.
- Estimate your rate of return: Look at your retirement accounts to see your average rate of return on your investments. You’ll use this to compound your account balances year over year while factoring in monthly contributions. This is by far the hardest part of manually calculating your retirement income because it’s a complex calculation. That’s why using one of the best retirement planning apps or calculators is a better route.
- Divide your total account balance at your retirement age by the number of months you’ll likely use it: Now that you know how much you’ll have saved by your retirement age, you can see how that income will serve you in retirement. For example, if you save $1 million toward retirement and retire at age 65 and the average life expectancy is 77.5 years, you’d have $6,666 per month without factoring in continued account growth for the money left in the account during your retirement years.
Because many factors affect your retirement income and the math is complex when evaluating how to calculate retirement income, it’s better to use a tool or turn to your financial adviser for insights.
How Much Do I Need to Retire?
The dollar amount you need for retirement will vary based on your financial situation. But some general guidelines to check how you’re doing saving toward retirement include these saving amounts:
- Your salary by age 30
- 3 times your salary by age 40
- 6 times your salary by age 50
- 8 times your salary by age 60
- 10 times your salary by age 67
Use those calculations to see how you’re doing, and then make a plan to catch up to those calculations by each benchmark.
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