How long will my retirement savings last?
Use this calculator to see how long your retirement savings will
last. This is based on your retirement savings and your inflation
adjusted withdrawals.
Definitions
- Cumulative savings at retirement
- Enter how much you have saved to-date for retirement. Then add
to this number how much you can realistically save between now and
your retirement date. Finally, add in any estimated net after-tax
dollars you expect to receive from the sale of real estate, a
business, or any item of value at or near your retirement date. Do
not count expected inheritances or return on investments. Use
today's values, not anticipated future values.
- Amount you want to spend annually in
retirement
- How much money do you want to spend annually in retirement
including payment of taxes. Use today's dollars. Subtract from this
number annual social security, pension, or other lifetime income
sources. Be careful not to underestimate living expenses and taxes.
Doing so could cause serious cash-flow shortages later on.
- After tax rate of return in retirement
- This is the annual rate of return you expect from your
investments after taxes. The actual rate of return is largely
dependent on the type of investments you select. The S&P 500
for the ten years ending on December 31st, 2011 had an annual
compounded rate of return of 2.92%, including reinvestment of
dividends. From January 1970 through the end of 2011, the average
annual compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 10.01% (source:
www.standardandpoors.com). Since 1970, the highest 12-month return
was 61% (June 1982 through June 1983). The lowest 12-month return
was -43% (March 2008 to March 2009). Savings accounts at a bank may
pay as little as 0.25% or less but carry significantly lower risk
of loss of principal balances.
It is important to remember that these scenarios are
hypothetical and that future rates of return can't be predicted
with certainty and that investments that pay higher rates of return
are generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time, especially
for long-term investments. This includes the potential loss of
principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not
reflect sales charges and other fees that funds and/or investment
companies may charge.
When you are taking periodic distributions from an account or
investment, the return earned is often lower due to more
conservative investment choices to help insure a steady flow of
income.
- Expected inflation rate
- What you expect for the average long-term inflation rate. A
common measure of inflation in the U.S. is the Consumer Price Index
(CPI). From 1925 through 2011 the CPI has a long-term average of
3.0% annually. Over the last 31 years highest CPI recorded was
13.5% in 1980. This calculator increases your distribution amount
at the end of each year by the rate of inflation. This begins at
end of the first year of distributions. This helps illustrate the
cost of providing a current amount of purchasing power throughout
your distributions.
- Additional advanced cash flow inputs
- These inputs allow you to account for addition income or
withdrawals that happen during retirement. All additional inputs
are considered to be annual amounts that happen at the beginning of
the year. If you have two items that overlap, they will
offset (or partially offset) each other. The inputs allow for
10 lines (one pre extra withdrawal or deposit) and consist of:
- Amount: Amount to deposit or withdraw. Since
these are cash flow items, negative numbers are withdrawals, and
positive numbers are deposits. If no amount is entered, we
blank out the two years fields.
- Year to start: First year of the item be
deposited or withdrawn. This is a year, with the current year
(2011) the lowest number allowed. If the year to end it blank
or less than year to start we enter the year to start in this field
as its default.
- Year to end: Default is to be the same as the
year to start, but you can change it to any year after the year to
start.
If the year to start is the same as the year to end, we assume the
amount is deposited or withdrawn only once at the beginnging of
that year.
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