Overall, I thought the NASD Retirement Calculator was a reasonably accurate estimator for how much is needed if one is close to retirement, e.g. with 5 years.
However, if one is more than 10 years from retirement, you may need to make an adjustment to one’s estimated salary. The calculator does not account for the possibility that your salary may grow faster than inflation during your early working years – e.g. due to promotions or job changes. For those that are 10 or more years from retirement, it may be necessary to project what your future salary may be and put the present value in the salary column. (For specifics on this economic-speak, see example #2 below.)
This calculator asks for the following information:
1. Current Savings
2. Annual Income
3. Other Income (Social Security, Pension)
4. Annual Yield
5. Predicted Inflation
6. Current Tax Rate
7. Retirement Tax Rate
8. Current Age
9. Retirement Age
10. Withdraw Until Age
After filling out the information, the calculator lets one know whether you have sufficient savings or the amount that one needs to save between before retirement.
Example 1 – Will B. Retired is a 64 year old that will retire next year. Here is his information.
1. $10,000 savings
2. $50,000 annual income
3. $45,560 other income ($25,560 Social Security; $20,000 pension)
4. 8% annual investment yield
5. 3% inflation
6. 25% tax rate
7. 25% tax rate in retirement
8. 64 years old
9. Retire at 65
10. Withdraw until 95
Amount needed for retirement. $227,592, which leaves Will short.
However, if one is more than 10 years from retirement, you may need to make an adjustment to one’s estimated salary. The calculator does not account for the possibility that your salary may grow faster than inflation during your early working years – e.g. due to promotions or job changes. For those that are 10 or more years from retirement, it may be necessary to project what your future salary may be and put the present value in the salary column. (For specifics on this economic-speak, see example #2 below.)
This calculator asks for the following information:
1. Current Savings
2. Annual Income
3. Other Income (Social Security, Pension)
4. Annual Yield
5. Predicted Inflation
6. Current Tax Rate
7. Retirement Tax Rate
8. Current Age
9. Retirement Age
10. Withdraw Until Age
After filling out the information, the calculator lets one know whether you have sufficient savings or the amount that one needs to save between before retirement.
Example 1 – Will B. Retired is a 64 year old that will retire next year. Here is his information.
1. $10,000 savings
2. $50,000 annual income
3. $45,560 other income ($25,560 Social Security; $20,000 pension)
4. 8% annual investment yield
5. 3% inflation
6. 25% tax rate
7. 25% tax rate in retirement
8. 64 years old
9. Retire at 65
10. Withdraw until 95
Amount needed for retirement. $227,592, which leaves Will short.
Example 2 – Em. S. Grad is 35 years old and plans to retire at 65. He has the same information as Will except for #4, which is 30 years. In addition, Em expects to retire as a Division Manager, which has a current salary of $150,000.
1. $10,000 savings
2. $50,000 annual income
3. $28,638 other income ($28,638 Social Security)
4. 8% annual investment yield
5. 3% inflation
6. 25% tax rate
7. 25% tax rate in retirement
8. 30 years old
9. Retire at 65
10. Withdraw until 95
Amount needed for retirement: $1,240,163. And the calculator recommends saving $6,761 per year (non inflation adjusted) until retirement to reach this goal.
To account for a higher salary due to promotion or job change, I recommend that Em should use the present salary of the position he expects have in the future. For example, if Em expects to be a division manager when he retires, he should input the $150,000 salary of a division manager today. With this adjustment, here is what Em would need for a retirement nest egg: $6,848,968. This would represent the high side retirement savings target.
For reference, the NASD estimates are very close to those the Vanguard Calculator example and the T. Rowe Price Calculator example.
Disclaimer: Examples are illustrative purposes only. Your results will vary with different inputs and assumptions. As with all retirement calculators, please consult with your financial advisor before taking any actions.
Next week – a summary of the four retirement calculator evaluations.
For more on retirement, check back every Friday for a new Reaping the Rewards segment.
Photo Credit: morgueFile.com, moderncog
This is not financial or retirement advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
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