With the new year, a lot of people are seeing changes in their paychecks. Maybe you’re making a bit more because of changes in tax law or an annual raise. Maybe you’re bringing home a bit less due to changes in your insurance costs. Maybe you didn’t see a change at all, but are hoping for a raise this year.
I know that when I see my paycheck go up, even just a few dollars, I immediately think “Oh good, a bit more money to spend every month.” But that is definitely the wrong way to go about it. I should instead be thinking “Oh good, a bit more money to save each month.”
Though for me, retirement is still many years away, I often wonder if I’m saving enough money towards my retirement. At this time every year, a number of my coworkers retire, and I’m often amazed at how young some of them are. I definitely want to be able to retire when I’m young enough to enjoy retirement. And I also want to have money to be able to enjoy myself – maybe do some traveling, for example.
But how much money do I need to retire? I spent some time looking at retirement calculators, and here are a number of them that I found helpful.
To test out the retirement calculators, I used a few flat adjustments (along with some of my actual numbers)
- Retire at age 65
- Have enough money for 35 years (Yes, a likely overestimate)
- 85% of current income needed at retirement
- 7% investment return before retirement
- 2.9% rate of inflation
This calculator was on the simpler side, which I appreciated, and explains all of the different options available to you. I also appreciated that it has an option for Social Security and for married couples (who get a higher Social Security benefit).
According to this calculator, I will run out of money at age 95 with Social Security. Seems pretty good, but a number of my family members have lived well into their 90’s, so increasing my numbers wouldn’t hurt. Without Social Security, I will run out of money at 85. Given the uncertainty around Social Security, I don’t want to completely depend on it if I don’t have to, and work under the assumption that I will get some, but perhaps not everything I anticipate today.
Next I went to Vanguard, since that’s where I have my TSP. This calculator is a bit different, because rather than telling you what you need to be saving, it tells you what your monthly income will be and what you may need. This tells me how much money I will have every month if I plan for 35 years of withdrawals.
What I really like about this calculator is that it allows you to actually input your Social Security estimate based on the estimate from SSA.gov. If you don’t have a my Social Security account, you should check it out. It’s a great look at your earnings history and the money you will have coming to you at retirement.
With these numbers, my savings is a bit low, but not too terribly low.
AARP uses more estimates and less actual numbers than the prior calculators. This calculator also uses your Social Security benefit, but it will estimate it for you if you don’t have the numbers from SSA.gov. Rather than ask you how much of your income you need to replace, it asks you what kind of lifestyle you plan to have. Do you plan to live more modestly, about the same, or more extravagantly? For this experiment, I chose “about the same.” By the time I retire, I plan to have my mortgage paid off, but I would like to have that extra money for traveling.
According to this calculator, I’m on track, but it doesn’t give me any option to input how many years I want this money to last. Based on the graph, it seems to anticipate that I will live until 90, but I would like to plan for more years than that.
The NerdWallet Calculator is simple and colorful, but I also like how clear it is. This calculator tells you how much money they estimate you will need every month and how much you will have. More importantly, it tells you how much more you need to save each month to make your goals. What I really like about this calculator is how easy it is to adjust the sliders to see what small changes can do to help you reach your goals.
This calculator does not take Social Security into account, but since it’s telling you how much you will need and how much you will have, you can take your SSA.gov estimate and add the two together.
According to this calculator, I’m low and need to increase my contributions much more than I anticipated, but when I add in Social Security, I’m in a much more comfortable spot.
Finally, if you want a very simple calculator that doesn’t ask much, check out the CNN Money Calculator. It only asks a few questions:
- age at retirement
- amount saved so far
- current salary
- percentage of salary saved
There are a lot of variables missing from this calculation, but it’s a good start. It tells you how much you will have based on your current path and how much you are estimated to need. (No surprise here, I’m low.)
If you aren’t saving for retirement yet, get started now. Even if you can’t put away as much as these calculators recommend, something is better than nothing. My plan this year is to square away my finances so that I can increase my retirement contributions, even if it’s only by 1%. I want to be sitting pretty when I hit my mid-60’s and be able to live out my life in comfort. I think that’s what we all dream of when we think of retirement. We just need to work to get there.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.