Plan Your Future with Confidence: A Guide to Using a Retirement Savings Calculator

Learn how to use a retirement savings calculator to plan for your future. Estimate your savings needs and create a roadmap for financial security.

Current Situation

Future Assumptions

Being on track for retirement is a good feeling. It lets you look forward to the future instead of worrying about finances, freeing you to dream about everything you want to do once you stop working.

The first step to this kind of confidence is a solid retirement target. The easiest way to get that number is with a retirement savings calculator, an online tool that estimates how much you'll save with your current habits.

Understand the Importance of Retirement Savings

The typical retirement age in the U.S. is between 65 and 67, yet the average life expectancy is 77 and a half. Many people live to be far older. Retirement planning protects your comfort, safety, and well-being in those post-work years.

At the basic level, retirement savings reduce stress and help you avoid financially burdening your family. The more you've saved, the more opportunities you have to enrich the years you've worked hard to enjoy.

Whether you dream of traveling the world or settling down close to your family members, you'll need an income. Social Security helps, but there's a good chance benefits will decrease within the next 10 years.

If you feel behind on your retirement planning, you're not alone. According to the Federal Reserve Board's most recent Report on the Economic Well-Being of U.S. Households, just 34% of working adults feel on track for retirement, compared to 40% in 2021. Setting a target helps you move in the right direction, and a retirement savings calculator can provide that goal.

Gather Necessary Personal Information

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To use a retirement calculator, you need basic data about your financial situation. Calculators typically ask you for the following:

  • Current age
  • Planned retirement age
  • Current household income
  • Current savings and investments

Most retirement calculators also ask for your current savings total and how much you plan to save each year. Round up the balances in your retirement plans and any savings accounts you've designated for retirement. Only include accounts in your calculations if you plan to keep the money there until you retire.

Some calculators will ask you for expected rates of return on your investments. These depend on the types of investments you have and how the market behaves. Check with your financial services provider or use the estimate the calculator provides.

The calculator may also ask how much you plan to spend in retirement. If so, consider inflation rates and how long you have until retirement. The Federal Reserve aims for 2% inflation, though the actual rate varies.

Inputting Data Into the Retirement Calculator

Feel free to browse a few online calculators until you find one that fits your needs. Different calculators may have specific areas of focus. For example, financial services companies often publish calculators focusing on investment selection.

When entering your information, be as accurate as possible. Overestimating your savings or underestimating your needs may feel good now, but it will skew your calculations. A few minutes of calculating your totals can save you years of stress down the road.

Projecting Retirement Income

Calculators use the numbers you enter to estimate the lump sum of your future savings. Experiment with the numbers to see how different savings patterns affect your savings. For example, how much more would you have in retirement if you saved 10% annually instead of 5%?

The calculator will tell you whether you've saved "enough," but you'll have to determine your annual income. You never know how long you'll live, but your immediate family's typical lifespans can be a good guide. When in doubt, overestimate. It's always safer to plan for more retirement years.

Estimating Retirement Expenses

Most retirement calculators ask for your estimated retirement expenses to calculate your savings target. The simplest way to get that number is to determine your current annual budget and factor in any lifestyle and spending changes you anticipate. For example, many retirees downsize or relocate to more affordable areas to save money.

Make room in your retirement budget for increasing healthcare expenses. Fidelity Investments estimates that today's retirees will spend a total of $165,000 on healthcare going forward, a number that is more than double what it was for 2002's retirees. If you're many years from retirement, your health costs may be significantly higher, and it's always safer to overestimate.

Ensure your estimate keeps up with inflation by incorporating a cost of living adjustment (COLA). The Social Security Administration incorporates a COLA into annual benefits to ensure the purchasing power of benefits stays the same. Many employers also factor a COLA into yearly raises. Plan for your expenses to increase at the same rate, and your estimates have a better chance of remaining accurate.

Determine How Much to Save

Once you're happy with the figures you've entered into the calculator, examine the estimates it produces. Most calculators give you one estimate of what you'll have based on your current savings, compared to an estimate of what you'll need to meet your expenses. Use those numbers to decide whether you can continue on your current track or start saving more.

Remember that the calculator uses your estimate of monthly retirement expenses to determine "enough." If your retirement goals include occasional large expenses, such as travel or home renovations, add those to the estimate of what you'll need.

You can use the calculator to experiment with estimates. For example, how does it change your projections to increase your monthly savings numbers? Find your "magic number" and consider how to make those savings targets a reality.

Required Minimum Distributions (RMDs) Explained

Delaying retirement age can help your savings last longer, but most people must start withdrawing money from their retirement accounts at a certain point. These withdrawals are required minimum distributions (RMDs).

Most plans send your first RMD on April 1 of the year you reach age 73, though some employer-based plans let you delay payments until you stop working.

RMD payment amounts depend on your balance. Check out the IRS's RMD calculator tables for your expected amounts.

How Accurate Are Retirement Calculators?

Retirement savings calculators won't give you firm, ironclad numbers. Any future numbers you enter are estimates, and small fluctuations can significantly affect your savings totals.

Use your savings prediction as a rough estimate. When in doubt, assume your savings estimate is too low and plan to save more.

MoneyAtlas is here to help you plan with tools for expert comparisons of banking, loans, credit cards, and investments. Confidently start planning for your dream retirement today!