Format for printing

It's probably best if you view the calculator in a separate browser window. That way you can continue to read this commentary and see the calculator at the same time. To do so, just click here.

Note that the calculator has input boxes for data, most of which have already been completed in this default window. Note also that certain information areas are underlined. These are hyperlinks to explanations of the desired data or to its importance. Go ahead and click around! Don't be shy. Click, for instance, on "Monthly Wages After Retirement." See the brief explanation? It's short and to the point, and provides a great overview of what you may expect from these hyperlinks.

Note also the two areas listed as "Inflation: Your Expenses" and "Rate of Growth: Your Income." Both ask you for a percentage entry to account for the changes in prices and wages through the years, both before and after you retire. If you believe inflation will average 4% annually, then you should enter the whole number "4" -- not the decimal number "0.04" in the calculator. (The program will convert your number to a decimal for you.) The same holds true for the investment rate of return entries found in other areas of the calculator.

Scroll down to the "Monthly Savings (Tax Deferred)" area and look at the required 401(k) investment entries. Your 401(k) payroll deductions must be entered as monthly contributions from both you and your employer, yet most of us are paid weekly, every other week, or twice a month. To get the monthly contribution, just multiply your contribution each pay period by the number of pay periods in a year, and divide by 12. If you contribute the maximum of $10,500 per year, then ensure your monthly contribution doesn't exceed $815. Otherwise the calculator will give you an error. Treat any matching contribution you receive from your employer the same way. Either multiply the match per pay period by the number of pay periods in the year and divide by 12, or divide the maximum contribution your employer will make in a year by 12.

Now take a look at the IRA data entry lines. See the asterisks? They're easy to miss -- but they refer to a footnote that says, "For IRAs, please input a yearly, not monthly, contributed amount." Thus, if you're contributing $2,000 per year to an IRA, that's the entry to be made, not $167 for a monthly contribution.

Continuing on, scroll down to the "Question to Answer" area. Here we're asking for an answer to the first question. (We can, though, ask the calculator to answer any single question out of all those shown.) Also, you should notice the asterisks after questions 2 through 5 and their associated footnotes. If you select one of those questions, additional inputs are available for calculating the answers. To see those input boxes, after selecting the question you must press the "Inputs" button at the very top of the form.

Now scroll to the bottom of the page and click on "Results." If you receive an error message, you simply have to check your entered data. (See? We told you it would be easy!) For example, if you get an error message that reads "Sorry! There was a problem with the numbers: You cannot have pension income after you die," you should look at the length of time you said you would live and the length of time you would collect your pension. If you entered that you would retire at age 57 and your spouse at age 55, that you would both die at age 95, and that you would collect pensions for 40 and 42 years, respectively, the pension payment continues two years after death for both of you -- something the calculator won't allow. To get an answer, then, you must change the length of time the pensions will be paid to reflect the length of time you said you both would live.

Good clicking. Now it's time to get to the nitty-gritty of seeing how we can calculate our retirement needs and what we need to do to get there from here. In short, it's time for your homework, Fool. 

« Homework Assignment

Couples Case Study »