It can be tricky to know if you have enough saved for retirement, or if you're currently saving enough to set yourself up for success. Fortunately, there are several online calculators that consider factors such as your age, expected retirement age, current retirement funds, and your expected annual rate of return to assess your retirement readiness.
How much will you have in savings?
This calculator can assess your savings progress so far, and can give you an estimate of how much you need to save going forward, expressed as a percentage of your salary. In order to produce its report, the calculator needs to know:
- Your current age.
- How much you (and your spouse, if applicable) earn.
- How much you've saved so far.
- The expected inflation rate going forward.
- How long you expect to live in retirement.
- How much income you'll need after you retire.
- Estimated investment returns, before and after retirement.
You'll also notice that the calculator gives you the option to include your Social Security benefits, and if you choose to do so, there are a couple of options. You can allow the calculator to estimate your Social Security benefits, using only your current salary. Or, you can obtain a more accurate estimate from the Social Security Administration (SSA) as I'll discuss.
What about Social Security?
For most Americans, there are two major components of retirement income -- savings (and/or pensions) and Social Security. The calculator I linked to can give you a good idea of how much you may need to save in order to achieve your desired retirement goal, with or without Social Security.
However, for a more accurate estimate of your Social Security benefits, there are a couple of options. First, you can download this worksheet from the Social Security Administration that will analyze your highest 35 years of income, or if you haven't yet retired, you can use this estimator.
Better yet, the most accurate estimate can be found by creating an account at www.ssa.gov and viewing your Social Security statements. There is an estimate of your retirement benefits, based on your actual work history, as well as estimates that tell you the effects of early or late retirement.
Are you ready to retire now?
If you're getting close to the age at which you'd like to retire, it's important to know whether your current savings are enough to provide your desired income in retirement. This calculator can help you determine that, taking your savings into consideration as well as your Social Security income.
Factors used in the calculation include your monthly income need, current savings, the estimate of future inflation, and your initial monthly Social Security benefit, so it's a good idea to get an accurate estimate as I discussed in the previous section.
The correct way to use these retirement fund calculators
While these and other financial calculators can be extremely useful in your retirement planning, it's important to appreciate that they yield estimates. There is no way to predict future inflation, investment returns, or how long you'll live with anything close to 100% accuracy.
However, what these calculators can do is give you a good idea of how much you'll need to save and how long your savings might last. I encourage you to use conservative estimates in your calculations -- that is, don't assume you'll achieve 12% annual investment returns or that inflation will be non-existent. The best way to assure that you achieve the results indicated by these calculators is to be realistic.