Many investors' universal goal is a comfortable retirement. The MarketBeat retirement calculator helps you see where you are in relation to your goal and what adjustments you may need to make. How much do you need to retire?
Saving for retirement is the biggest objective of investors. In the last 40 years, the emergence of the individual retirement account (IRA), 401(k), Roth IRA, SEP IRA, and other investing tools have made saving for retirement accessible for a large part of our population.
Because retirement investing can be so difficult, MarketBeat has a new, easy-to-use tool that can help you see what it takes to meet your goals. The MarketBeat retirement calculator requires you to provide some basic information based on the goals you have for your retirement and then it does the rest.
Step 1: How Old Are You And When Will You Retire?
Time is one of the most important elements of a retirement plan. The sooner you start saving for retirement, the better. Likewise, the longer you can delay retirement, the better because it gives you more years to compound your returns. If you’re younger, you may want to see how adjusting your retirement date below 65 affects your savings goals because you may be able to retire early. If you’re closer to 65 you may want to see how extending your retirement date by a few years may help you have the retirement you desire.
Step 2: How Much Are You Saving?
For most investors, you can find this right on your retirement account statement. You’ll know how much you put in every month and don’t forget to include any employer matches and personal savings too. That will be essential to get an accurate number.
Remember, this is a tool that lets you see how increasing or decreasing your retirement savings will affect your retirement. The key to remember is that this tool is about today. As your income and lifestyle needs change, you’ll need to revisit the tool to see if you are still on track.
Step 3: How Much Are You Starting With?
This is where the retirement calculator can become a “choose your own adventure” activity. For many Americans, a retirement account is their sole source of retirement savings. However, other investors may have other taxable investment accounts that they are planning on using in their retirement. You can choose to put all of the accounts in this field or, you can do the exercise for only the money you have in a particular retirement account. The key to the tool though is to be realistic and honest with yourself. If you don’t really have $50,000 to start with you aren’t going to get the same results as the projection.
Step 4: What Is Your Portfolio Rate Of Return
This is also known as return on investment (ROI) and it can be subjective but there are ways of being as accurate as possible. A good rule of thumb is that things regress to a mean. In other words, past performance does not predict future results. If you are a more conservative investor focused on dividends, you should choose a rate of return closer to 6%. If you’re a more aggressive investor, you may go higher if the history of your investments warrants it. Once again, honesty is the best policy.
If your retirement account is in a fund, you can look at the fund’s prospectus to see what the current expected rate of return is. You can look at the fund’s performance over several years. If you have more years until retirement, then you may want to look at what the fund’s performance has been over the last 10 or 20 years (if available). If you’re nearing retirement, it may be best to look at what the fund has averaged over the last one to five years.
Step 5: How Much Are You Going To Withdraw
Essentially this is asking you how much money (as a percentage) you want to withdraw every year throughout retirement so you don’t run out of money. Most experts advise that you plan on taking out no more than 4% or 5% of your savings in the first year you retire. After that the amount may change based on inflation. Keep in mind that you will be receiving Social Security income that will be separate from what you will be relying on from your retirement savings.
Step 6: How Much Annual Retirement Income Do You Want?
This may seem like an odd thing to put at the end, but it’s a good reality check. Retirement is a personal decision, some people will be comfortable living in their current home, and maybe taking a few small trips a year. Others may have much more elaborate, and expensive, retirement plans. This is where you have to be realistic about your goals and expectations. This is particularly true if you have a spouse. This doesn’t work if your idea of retirement is traveling the world and theirs is to winter in a warm state.
Whatever your plans are, you know you’ll have some predictable expenses. And don’t forget that medical expenses are likely to go up during this time as well.
Be Honest When Using the Retirement Calculator
If you get nothing else from this exercise, please understand that you do yourself no favors by providing inaccurate data. Retirement is a personal decision, and how you spend your retirement years is a very personal decision, but you can only make good decisions with accurate information.
This brings us to a final thought; your circumstances don’t dictate your final outcome. Ultimately your actions or inactions towards those circumstances will determine if you meet your retirement objectives. If you’re not on track, it doesn’t mean your retirement is shot. Hopefully, you still have time to make corrections. That’s why we’ve created the tracker. It’s yet another reason you can continue to trust MarketBeat.com with information that helps you meet your largest investment goals.