Retirement Calculator

What is Retirement?

Retirement is when someone stops working and begins a new phase of life where they no longer rely on a job for income. For most people, retirement is a long-term decision that lasts for the rest of their lives.

Why Do People Retire?

People retire for many reasons. Physical or mental health might make continuing to work difficult. Job stress can become overwhelming, or someone may simply feel ready to enjoy a new lifestyle. Age also plays a role—most people retire between 55 and 70. Financial readiness is another critical factor. Retiring without sufficient savings can be challenging, as Social Security alone is designed to replace only about 40% of the average worker’s income.

How Much Should You Save for Retirement?

Determining how much to save depends on personal goals, income, health, and lifestyle preferences. Here are a few common guidelines:

• 10% Rule: Save 10-15% of your income each year. For example, saving 10% from age 25 can build a $1 million retirement fund.
• 80% Rule: Plan to replace 70-80% of your pre-retirement income to maintain your lifestyle. For instance, if you earn $100,000 annually, you might aim for $70,000–$80,000 in retirement income.
• 4% Rule: Estimate how much you’ll need by dividing your annual retirement spending by 4%. For example, if you need $100,000 per year, you’ll need a $2.5 million nest egg.

Inflation and Retirement Savings

Inflation reduces the value of money over time, meaning your savings may not stretch as far in the future. For instance, $1 today may be worth less than $0.50 in 30 years due to inflation. To combat this, consider investments like Treasury Inflation-Protected Securities (TIPS) or dividend-paying stocks, which can help keep up with inflation.

Common Sources of Retirement Income

• Social Security: A government program that provides monthly payments based on your earnings history. Social Security typically replaces about 40% of pre-retirement income.
• Employer-Sponsored Plans (401(k), 403(b), 457 Plans): Many employers offer retirement savings plans with matching contributions, allowing your funds to grow tax-free until withdrawal.
• IRAs and Roth IRAs: Individual Retirement Accounts provide tax benefits for retirement savings. Traditional IRAs are taxed during withdrawal, while Roth IRAs use after-tax contributions but are tax-free during retirement.
• Pensions: These employer-managed retirement funds provide fixed payments, though they are less common today.

Other Retirement Savings and Income

• Investments: Options like mutual funds, stocks, bonds, or real estate can grow your wealth for retirement. CDs and low-risk investments are also good for those nearing retirement.
• Personal Savings: Savings accounts and emergency funds can supplement your retirement income but may not keep up with inflation.
• Passive Income: Rental properties, royalties, and stock dividends can provide additional income.
• Annuities: Fixed payments distributed over time, often for the rest of your life.
• Home Equity: Reverse mortgages or selling property can provide funds during retirement.

Planning for a Comfortable Retirement

To plan effectively, consider your financial goals, health, and the lifestyle you envision. Use tools like the Retirement Calculator to estimate savings needs and adjust for inflation. Whether through Social Security, employer plans, personal investments, or other income sources, a well-thought-out plan can help you enjoy a secure and fulfilling retirement.