How to Use Retirement Planning Calculator

Posted by Cordelia Topham

A retirement planning calculator is a tool that allows you to find out how much savings you need to provide for your life after you retire, and how much you need to add to your savings annually. There are many free retirement planning calculators online, all of them are quite similar Flaviar, though some allow you to add more variables than the others - flaviar.

In order to calculate your income during retirement, you will need to fill in the following data:

1) Your current age and retirement age. Retirement planning calculators assume that you don't contribute into your savings the year you want to retire. So, if you plant to retire at the age of 60, put 59 here. You also may input earlier retirement age to see whether you can afford to retire a few years earlier than you plan to.

2) After-retirement period for savings to last. Here you shall put the age you expect to live up to, and the period you want your money to last after retirement. We recommend that you put above-average life expectancy age here, because, of you are lucky to live longer than average (or the age you assume to live up to), you don't want to run out of income.

3) Annual retirement contribution. Put the sum you plan to add annually to your retirement savings while you are working.

4) Rate of return before and after retirement. This should be an after-tax rate of return you expect to have from your investments.

5) Annual expenses after retirement. Put in the sum of money you want to spend yearly after you retire. Take different factors into account when calculating the expenses: they may become lower because you won't need to commute to work or support your children any more, but they also may increase because you will need to invest more into health care, or just want to spend on hobbies, travelling, etc.

6) Social security benefits. You may include your social security benefits into your plan, as they may be a quite sufficient part of your income. Married couples usually have higher benefits than single individuals. Social securities are based on sliding scale and depend on your income, retirement age, and how long you work. These benefits automatically increase each year based on increases in the Consumer Price Index.

You might be interested in making a retirement plan for your household. In this case, if you are married and both you and your spouse work, you shall do the calculation for each spouse individually. Also, take the inflation rate into account when making your retirement plan. Some retirement planning calculators already consider the impact of inflation of your savings.