Reality Retirement Calculator


Projecting income needed for retirement is a difficult task. It requires looking into the future for decades and matching anticipated needs with the resources you expect to have available. Most retirement calculators assume that current spending levels will increase each year due to inflation. Even with moderate inflation assumptions, the result is often a discouragingly unrealistic retirement plan.

In reality, retirement spending data show that most households naturally spend less as they age. The "reality retirement planning" model certainly isn't widely accepted at this point. Further, it is subject to criticism on several fronts - for example, understating the impact of rising healthcare costs on senior citizen spending. Still, the idea has intrinsic appeal and many people can point to anectodal experience with parents or seniors that supports the idea. Even if "reality retirement planning" is only partially on target, it could have important implications for anyone considering a reverse mortgage.

The Reality Retirement Calculator allows you to take this essential fact into account in preparing your retirement plan. The calculator is designed to project, based on information you provide, a realistic appraisal of retirement spending needs and the savings goal needed to meet these needs. The calculator also provides a comparison with the more traditional retirement planning approach.

If you would like to use the Reality Retirement Calculator on your website, please contact us.

Current Annual Income ($):   Enter your current gross annual income.
 
Desired Post-Retirement Income (%):
(As % of Current Income)
  Enter the percentage of your current income that you project you will need during retirement to maintain your standard of living. Individual circumstances vary, but here are some general guidelines to help you:

  • Minimum (50% to 60%): This meets the government's minimum level of financial adequacy (defined as one-half of pre-retirement income).
  • Basic (70% to 80%): Will allow for the basics in retirement, particularly if you have employer-paid retiree health insurance. Plan for a retirement with limited money availalble for travel or luxury expenditures.
  • Moderate (80% to 90%): May be required if you will have to pay your own Medicare premiums and/or pay for insurance to cover costs above Medicare.
  • Comfortable (90% to 120%): This level may be needed if you would like a retirement lifestyle that is more comfortable than your current lifestyle.
  •  
    Assumed Long-term Inflation Rate (%):   Enter the percent you feel that inflation will rise on average during retirement. Since 1913, statistics show an annual average inflation rate of 3.3%. Since 1972, the inflation rate has ran at a 4.78% annual clip. A 2.5% to 5% inflation rate is a reasonable projection for the long-term future.
     
    Average Annual Decrease in Spending (%):      
        Ages 65-74:   National Average: 2.5% Senior Spending Detail
        Ages 75+:   National Average: 2.8% Senior Spending Detail
     
    Current Age:   Enter your current age rounded up to the next whole year.
     
    Desired Retirement Age:   Enter your desired retirement age rounded to the nearest whole year.
     
    Life Expectancy:   Enter the age you expect to live to. Northwestern Mutual offers an excellent interactive calculator to help you assess longevity based on health, family history, and many other variables.
     
    Expected Annual Pension ($):   If you're lucky enough to be vested in a company-provided pension, enter the yearly amount you expect to receive during retirement. Contact your company's benefit office for this information.
     
    Expected Social Security Benefit ($):   Enter the yearly amount you expect to receive from social security during retirement. The social security office sends you a benefit statement each year near your birthday with more precise benefit information. Use this if available. Or, you can request an up to date statement here. Otherwise, you can use these very general guidelines:

  • If you make under $25,000, enter $8,000
  • If you make between $25,000 - $40,000, enter $12,000
  • If you make over $40,000, enter $14,500
  • Age Social Security Begins (Min 62):   Enter the age at which you expect to start receiving social security benefits. Full benefits are available starting at age 65 (if born before 1938) and reduced benefits are available at 62. Full benefits for those born after 1937 range from 65 years, 2 months to 67.
     
    Assumed Investment Return (%):   Enter the average annual long-term investment return you expect to earn on your retirement savings. The lower the expected rate, the more you'll need to save to meet retirement income goals. The default is 7%.
     
     
    In addition to the Reality Retirement Calculator, you may to use this 401(k) Savings Calculator to explore how your retirement savings goals can be met under different scenarios.


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