Be careful with this: The projections are gross (ie not inflation-adjusted) and the advice buried in the explanatory text below does not sufficiently discuss this issue. It says you can do a "simple" calculation by applying one year's worth of inflation versus a compounded rate of return. Assuming historical inflation rates, the value of the savings it projects will be significantly eroded compared to what it shows.
Edit: And as others have pointed out below, the returns assumed are unrealistically optimistic. Be warned about basing your retirement planning on this.
Yeah, it's also using a 9% rate of return for the "conservative" scenario and 12% for aggressive. Due to the exponential nature of compound interest, just a single point of overoptimism in your real growth number leads to a massive overestimation of your results. 1.07 ^ 30 = 7.6, 1.09 ^ 30 = 13.3, and 1.12 ^ 30 = 30.0
I agree with this. Inflation is a huge factor and needs to be considered with any retirement calculator because you can't assume that your $100K today is worth $100K in 20 years.
I actually built a calculator myself to better accommodate for inflation and have the ability to tweak the numbers just a bit more. If you're interested:
Yes, sorry to say, but this is a good idea (and you see plenty of those calculators), but assumptions and findings do not make sense. Inflation for long-term projections is one of the main drivers of the final results; you cannot ignore it.
It would be much better to make estimates in inflation-adjusted (today's) dollars: at least then one can relate the results to costs you see today. And even in pre-inflation dollars, average 9% return is anything but conservative.
On smaller points: adding "0" as an invest monthly option would be a good idea.
Those seeking a much more sophisticated retirement calculator, where you can set nearly every parameter, such as rate of return, amount saved, and nearly everything else, should checkout firecalc.
You can select different withdrawl rate strategies, different investment strategies, deferred compensation strategies, different investment mixes, and many, many other things.
The interface isn't as pretty, but it is unbelievably sophisticated.
I second the motion on firecalc because it really helps you visualize in how many 30 year periods historically you would have gone to zero (which is obviously the thing everyone most needs to avoid). The 100 year averages are useless as they don't encapsulate realistic investing lifetime chunks of around 30 years, the firecalc approach gets around this with the 30 year increment parameter (which you can tweak as well). It's a better way to approach the problem.
"In order to get a good understanding of the purchasing power of your future retirement savings for today, you can do a “simple” calculation: Take your total retirement savings and multiply it by 3%. For example, if you have $1.25m (retirement savings), multiplied by 0.03% (inflation), you get $45,000 in inflation. Then you subtract that number from your total savings: $1.25m - $45k = $880k. This will give you a baseline to understand your financial situation."
Yeah, so $1.25m - $45K is NOT 880K.
Also, the effect of inflation compounds every year. So maybe you want to divide the nominal answers you are giving out by (1.03)^num-years-from-today to get the real value (in today's dollars) .
> Then you subtract that number from your total savings:
You subtract your annual spending (3%) from your total invested? Why would you do that? To arrive at the total amount you'd have invested after you spend for a year?
This paragraph reads like a markov chain generator.
Inflation is inevitable. If that word is new to you, it simply determines how much purchasing power your dollar has. Historically, inflation has always increased with time.
In order to get a good understanding of the purchasing power of your future retirement savings for today, you can do a “simple” calculation: Take your total retirement savings and multiply it by 3%. For example, if you have $1.25m (retirement savings), multiplied by 0.03% (inflation), you get $45,000 in inflation. Then you subtract that number from your total savings: $1.25m - $45k = $880k. This will give you a baseline to understand your financial situation.
I don't even.... What !? There are so many things wrong with that calculation.
It actually says that the rate of inflation always increases with time, which is... not true! Even if it's trying to say, clumsily, that there has been inflation every year historically... that's also not true. There has been periods of deflation, historically
This is a really good interface but the assumptions backing the results seem weak. The growth rate on conservative and aggressive portfolios are high. The recommended amounts of saving should be as % of income. Recommending someone that makes 100k save 100 dollars a month is not great. It's also sad that the maximum amount saved per month is 1k where even just maximizing 401k is 1.5k a month.
I love the simplicity and the look of the UI. Unfortunately I think the simplicity means that very important parameters are being left out. Ideally, you should be able to specify estimated return rate and estimated inflation rate. Also, specifying the draw down rate would be nice... I've poured through a lot of these calculators recently as I've begun to get interested in FIRE... I think the most simple (but good) one is the AARP calc if you want a simple example.
Finally, and I think this is where it really falls short - this calculator is WAY TOO OPTIMISTIC out of the gate. I just cross checked it w/ my own calculations - it doesn't add up. Its "conservative" estimate is way higher than my "optimistic" plan (10% return / 3% inflation based on a passive index investing strategy)
>>> Take your total retirement savings and multiply it by 3%. For example, if you have $1.25m (retirement savings), multiplied by 0.03% (inflation), you get $45,000 in inflation. Then you subtract that number from your total savings: $1.25m - $45k = $880k. This will give you a baseline to understand your financial situation.
I don't fully understand... 1.25M - 45k is most definitely not 880k. Did you do something else that you forgot to list?
All this does is scare me. I honestly hope I die before I have to retire, because there's no way I'm going to have saved enough money to live off of, even modestly, and no way I'm going to remain sharp enough to continue earning through and beyond my 60s.
> there's no way I'm going to have saved enough money to live off of
It is possible. It will take work and change on your part. The first step is to track your spending. The easiest way to do this is get an account with mint, ynab (you need a budget), or personal capital. You can link all of your accounts with the site and app. You can then categorized your spending. After you do this you can start seeing where you can reduce your spending. The major areas you can save on are housing, transportation, food, and miscellaneous. The reverse order is probably the easiest to reduce costs.
The Millionaire Next Door is a great book that talks about the difference in mindset between people who are able to build wealth well and those who are not able to. It is really eye opening if you are always broke.
It should be possible to click on or hover over "aggressive" and "conservative" and see what the assumptions are. And the simulations must be account for volatility to be useful. Otherwise, everyone should just invest aggressively and put all their money in stocks, since they have higher average returns than bonds.
> The average tax refund in the US is $3,050 per year.
> Avoid spending tax refunds to get to your retirement faster.
The advice should instead tell the user to plan the tax payments to avoid giving the government an interest free loan by overpaying taxes and getting it back as a refund much later. Of course, a particular sum should be invested regularly.
Great interface, but I would find it more useful I could pick an estimate rate of return for my investments and choose the rate of inflation. It's also be useful for there to be a "max out 401k" button for how much I want to contribute.
For those interested in learning the fundamentals behind that calculator, I wrote a book that can be read in an hour, and received praise from Derek Sivers, David Heinemeier Hansson, and many others.
You can read it for free online, or download the PDF (also free).
If you like it, I just ask that you help spread the word. Starting investing when your young is so, so important. And unfortunately the core essentials are often diluted with unnecessary complexities in most of the mainstream books. That's why I wrote this one.
Nice to see your income rise so much just before you die and a lawyer gives it all away. Alas “the old have the means but no mobility, and the young have the mobility but no means”
What are you even talking about? When you retire you stop accumulating savings and start spending it. At first it continues to grow but if you plan correctly you will have made good use of it by end of life. Then it will be depleted.
Impressive. I imagine lots effort has been put into making the user interface as clean as possible.
It's a pleasure to fiddle with the parameters and see the impact on the curves.
The only downside (for me at least) is that I live in UK.
And my pension plan is not in $$$.
I like how this calculator includes fees. Fees are so often overlooked when calculating retirement.
"Lots of people are unknowingly paying 2%, and more, in annual fees. At a low-cost brokerage you can get away with 0.5%. See what a difference that does to your final balance."
[+] [-] thetwentyone|8 years ago|reply
Edit: And as others have pointed out below, the returns assumed are unrealistically optimistic. Be warned about basing your retirement planning on this.
[+] [-] teej|8 years ago|reply
It's baseline assumptions are way off.
[+] [-] AustinGrandt|8 years ago|reply
I actually built a calculator myself to better accommodate for inflation and have the ability to tweak the numbers just a bit more. If you're interested:
https://www.financialtoolbelt.com/calculators/financial-inde...
[+] [-] ptero|8 years ago|reply
It would be much better to make estimates in inflation-adjusted (today's) dollars: at least then one can relate the results to costs you see today. And even in pre-inflation dollars, average 9% return is anything but conservative.
On smaller points: adding "0" as an invest monthly option would be a good idea.
[+] [-] pascalxus|8 years ago|reply
but, other than that, it's a good calculator and I like the idea and the interface is nice too.
[+] [-] compiler-guy|8 years ago|reply
You can select different withdrawl rate strategies, different investment strategies, deferred compensation strategies, different investment mixes, and many, many other things.
The interface isn't as pretty, but it is unbelievably sophisticated.
https://www.firecalc.com/
[+] [-] jonbarker|8 years ago|reply
[+] [-] IanCal|8 years ago|reply
http://cfiresim.com/
[+] [-] kc10|8 years ago|reply
[+] [-] ttul|8 years ago|reply
[+] [-] chrisan|8 years ago|reply
Like how am I supposed to estimate costs I will need in retirement to know how much I need to start with.
[+] [-] yanslookup|8 years ago|reply
[+] [-] SubiculumCode|8 years ago|reply
[+] [-] _lex|8 years ago|reply
Yeah, so $1.25m - $45K is NOT 880K.
Also, the effect of inflation compounds every year. So maybe you want to divide the nominal answers you are giving out by (1.03)^num-years-from-today to get the real value (in today's dollars) .
Please do better math.
[+] [-] portman|8 years ago|reply
Not $45k
It is difficult to trust the calculator when arithmetic errors exist in the prose.
[+] [-] cecilpl2|8 years ago|reply
You subtract your annual spending (3%) from your total invested? Why would you do that? To arrive at the total amount you'd have invested after you spend for a year?
This paragraph reads like a markov chain generator.
[+] [-] cure|8 years ago|reply
What is my retirements purchasing power today?
Inflation is inevitable. If that word is new to you, it simply determines how much purchasing power your dollar has. Historically, inflation has always increased with time.
In order to get a good understanding of the purchasing power of your future retirement savings for today, you can do a “simple” calculation: Take your total retirement savings and multiply it by 3%. For example, if you have $1.25m (retirement savings), multiplied by 0.03% (inflation), you get $45,000 in inflation. Then you subtract that number from your total savings: $1.25m - $45k = $880k. This will give you a baseline to understand your financial situation.
I don't even.... What !? There are so many things wrong with that calculation.
[+] [-] astura|8 years ago|reply
It actually says that the rate of inflation always increases with time, which is... not true! Even if it's trying to say, clumsily, that there has been inflation every year historically... that's also not true. There has been periods of deflation, historically
https://en.wikipedia.org/wiki/Deflation#Historical_examples
[+] [-] ReadingInBed|8 years ago|reply
[+] [-] allsunny|8 years ago|reply
[+] [-] jonwachob91|8 years ago|reply
[+] [-] allsunny|8 years ago|reply
Finally, and I think this is where it really falls short - this calculator is WAY TOO OPTIMISTIC out of the gate. I just cross checked it w/ my own calculations - it doesn't add up. Its "conservative" estimate is way higher than my "optimistic" plan (10% return / 3% inflation based on a passive index investing strategy)
[+] [-] jonwachob91|8 years ago|reply
I don't fully understand... 1.25M - 45k is most definitely not 880k. Did you do something else that you forgot to list?
[+] [-] loeg|8 years ago|reply
[+] [-] davidw|8 years ago|reply
[+] [-] ram_rar|8 years ago|reply
[+] [-] psyc|8 years ago|reply
[+] [-] mcovey|8 years ago|reply
[+] [-] Veelox|8 years ago|reply
It is possible. It will take work and change on your part. The first step is to track your spending. The easiest way to do this is get an account with mint, ynab (you need a budget), or personal capital. You can link all of your accounts with the site and app. You can then categorized your spending. After you do this you can start seeing where you can reduce your spending. The major areas you can save on are housing, transportation, food, and miscellaneous. The reverse order is probably the easiest to reduce costs.
The Millionaire Next Door is a great book that talks about the difference in mindset between people who are able to build wealth well and those who are not able to. It is really eye opening if you are always broke.
[+] [-] toomuchtodo|8 years ago|reply
Save more if you can though.
[+] [-] gowld|8 years ago|reply
[+] [-] poster123|8 years ago|reply
[+] [-] newscracker|8 years ago|reply
> Avoid spending tax refunds to get to your retirement faster.
The advice should instead tell the user to plan the tax payments to avoid giving the government an interest free loan by overpaying taxes and getting it back as a refund much later. Of course, a particular sum should be invested regularly.
[+] [-] jartelt|8 years ago|reply
[+] [-] makalumhenders|8 years ago|reply
You can read it for free online, or download the PDF (also free).
https://moneyforsomething.org
If you like it, I just ask that you help spread the word. Starting investing when your young is so, so important. And unfortunately the core essentials are often diluted with unnecessary complexities in most of the mainstream books. That's why I wrote this one.
[+] [-] cryoshon|8 years ago|reply
this is why student loans have made perpetual paupers out of the better part of an entire generation.
[+] [-] matt_wulfeck|8 years ago|reply
[+] [-] metalliqaz|8 years ago|reply
[+] [-] BugsJustFindMe|8 years ago|reply
[+] [-] flukus|8 years ago|reply
[+] [-] lozzo|8 years ago|reply
The only downside (for me at least) is that I live in UK. And my pension plan is not in $$$.
[+] [-] pedro_hab|8 years ago|reply
[+] [-] Kerrick|8 years ago|reply
[+] [-] cowholio4|8 years ago|reply
"Lots of people are unknowingly paying 2%, and more, in annual fees. At a low-cost brokerage you can get away with 0.5%. See what a difference that does to your final balance."
[+] [-] ixtli|8 years ago|reply
[+] [-] miguelrochefort|8 years ago|reply
y: How much do you need to retire forever?
[+] [-] amdavidson|8 years ago|reply
[+] [-] ataturk|8 years ago|reply
[deleted]
[+] [-] xchaotic|8 years ago|reply