New T. Rowe Price Retirement Calculator

This is an update to my evaluation of the retirement calculator from T. Rowe Price that I did earlier. The new T. Rowe Price Calculator uses simulations to estimate whether one can achieve one's retirement income goals.

As with previous retirement calculators, it works best if one is within 5 years of retirement. If one is further than 5 years from retirement, it may be necessary to calculate an inflation adjusted or raise adjusted retirement income. Also, this calculator does not include Social Security payments for making the retirement calculations.

Here are two points I do like about this calculator:

• It allows one to choose an investment allocation and the calculator uses that information to estimate one's investment return.



• The calculator appears to use a Monte Carlo simulation to give a probability based answer on whether one has sufficient funds to retire. One can choose probabilities from 50% to 99% certainty.

Example 1. Will B. Retired is 64 and will retire next year. Here is his information:

1. Start Age - 65


2. Retirement Length - 3o years


3. Retirement Assets - Iterate


4. Retirement Income- $4,180 (or about $50,000 per year)


5. Portfolio - 60% Stock/30% Bond/10% Short Term Securities


6. Simulation Success Rate - 90%

I iterated the retirement assets until $4,180 of income was achieved. The number was $1,270,000 which was very close to the number of 1,029,000 with the previous T. Rowe Price calculator.

Example 2 - Em S. Grad is currently is 35 and will retire at 65. He earns $50,000 per year and only expects cost of living raises of 3%. Using the formula, 1.03^30 X $50,000, Em's salary will be $121,363 in 30 years. Using the following information, I iterated to find the amount of savings needed.

1. Start Age - 65


2. Retirement Length - 3o years


3. Retirement Assets - Iterate


4. Retirement Income- $10,100 (or about $121,000 per year)


5. Portfolio - 60% Stock/30% Bond/10% Short Term Securities


6. Simulation Success Rate - 90%

Iteration showed that the retirement assets needed are $3,160,000. This was close to the estimate of $2,475,939 by the previous T. Rowe Price calculator since Em's savings would result in $302,000 additional funds in that example. Of course, if Em receives raises due to promotions, the amount would need to be adjusted upward proportionately.

I believe the reason the estimates for the new calculator are higher due to the 90% probability of success chosen. If I chosen an 80% probability of success, then the retirement savings numbers are slightly below the previous estimates.

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Photo Credit: morgueFile.com, Ronnie Bergeron

This is not financial advice. Please consult a professional advisor.

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