Adjust the orange knobs to explore how much you want to contribute towards retirement.
What is included in the calculation?
The calculator assumes that you contribute a fixed amount each year starting at "Current Age" and then withdraw a fixed amount each year starting at "Retire" age. It also includes the interest you receive each year at the interest rate specified. (The lighter, curved areas on the chart show the amount of interest earned each year.)
The simulation does not attempt to calculate or predict pensions, social security benefits, medical costs, inflation, taxes, or any other costs, benefits, or risks.
What interest rate is appropriate?
Use an interest rate that is adjusted for inflation. That way, all dollar amounts shown can be valued in today's dollars.
If your retirement savings are invested in the stock market, performance may vary widely. Historically, after adjusting for inflation and dividends, in some decades the stock market had negative returns while other decades it returned as high as 16% per year [citation]. Longer time frames have been somewhat more stable. From 1871 to 2011, all 30-year periods of the stock market have returned at least 3.2% annualized interest. The average annualized 30-year return was 6.6%. [citation]
How can I account for taxes?
Assume that contribution amounts are after taxes, but withdraw amounts are before taxes.
For example, if you want to spend $60,000 per year in retirement and you expect your distributions to be taxed at 15%, then configure the retirement calculator to withdraw 15% extra ($60,000 / (1 - 0.15) = $70,600).
How about pensions?
If you expect to receive money from pension plans or government programs, that money will be in addition to what the calculator shows for your yearly withdraw amount in retirement.
For example, if you want $60,000 per year in retirement, and you expect your pension to provide $20,000 per year, then configure the retirement calculator to withdraw $40,000 per year (that's the remaining income you'll need from your retirement savings).
Why are the dollar amounts approximate?
The retirement calculator uses full precision internally, but it rounds all displayed values for clarity and because there are so many uncertainties in retirement planning.
For example, increasing the interest rate by a mere 0.1% can lead to a 5% increase in your retirement earnings. Interest rates have historically varied by much larger margins than that, so predicting retirement savings down to the penny (or even to the thousands of dollars) is meaningless.
Where can I learn more?
For more information about investing and market histories, check out the articles and calculators at Moneychimp.
You can also try out the original retirement calculator (released in May 2012), which offers a slightly different perspective on retirement savings and is not optimized for smartphones.