Why use this calculator
Retirement planning fails in a specific way: the number is abstract until it is compared against something. This calculator projects your balance and then puts it next to the target implied by the income you actually want, so the output is a surplus or a shortfall rather than a figure with no context.
It also separates what you contribute from what compounding contributes, which is the part that changes behaviour. Seeing that growth eventually exceeds contributions is a stronger argument for starting now than any general advice about saving. The year-by-year table shows exactly when that crossover happens for your own numbers, which is usually earlier than people expect.
How to use it
- Enter your age and intended retirement age, then everything currently earmarked for retirement across superannuation, employer plans and personal investments.
- The monthly contribution should include employer contributions, not just your own.
- Use a return rate after fees, your fund publishes its long-term net return, and be conservative, because an optimistic figure only makes the projection wrong.
- The income you want should be in today's dollars, and the calculator shows the projection in today's dollars too so the two are comparable.
What each result means
- Projected retirement savings
- Your balance at retirement in future dollars, assuming contributions continue and returns average out.
- Target needed (4% rule)
- Twenty-five times your desired annual income. The balance the 4% rule suggests you need.
- Surplus
- How far the projection exceeds the target. A surplus gives room for lower returns or earlier retirement.
- Shortfall
- How far the projection falls short. Closing it means contributing more, working longer, or wanting less income.
- Extra saving needed each month
- The additional monthly contribution, at the same return, that closes the shortfall by your retirement age. Working longer or wanting less income are the other levers.
- Target reached at age
- The first birthday at which your projected balance reaches the 4% rule target. Earlier than your planned retirement age means you have room to retire sooner or save less.
- Income this could sustain
- Four per cent of the projected balance. Roughly what could be drawn annually with inflation adjustments.
- Years until retirement
- The compounding period. It is the most powerful variable in the whole projection.
- Total you will contribute
- Current savings plus every future contribution: the money that comes from you, before any investment growth.
- Investment growth
- The part of the final balance produced by returns. Over long horizons it usually exceeds contributions.
- In today's dollars (2.5% inflation)
- The projection expressed in current purchasing power, which is the figure to compare against your income target.
The formula
The balance is projected as
FV = PV × (1 + r)ⁿ + PMT × [(1 + r)ⁿ − 1] ÷ r
- r
- the monthly return
- n
- the number of months to retirement
The target applies the 4% rule: annual income needed × 25, which is the balance from which 4% could be drawn each year with inflation adjustments and a high probability of lasting thirty years. The today's-dollars figure discounts the projection at 2.5% a year.
How this number is used in practice
The 4% rule came from research on historical United States market returns and assumed a thirty-year retirement with a balanced portfolio. It is a useful planning anchor rather than a law. Longer retirements, different markets and different asset mixes all move the safe rate, and most researchers now describe a range rather than a single figure.
Government pensions change the target substantially and are not included here. An Australian retiree eligible for a full or part Age Pension, or an American receiving Social Security, needs considerably less private capital than the 4% rule alone suggests. Anyone close to retirement should model their entitlement before treating a shortfall as final.
Sequence of returns risk is the danger the projection cannot show. A large market fall in the first few years of drawdown does far more damage than the same fall later, because you are selling assets at depressed prices to fund income. It is the main argument for holding two to three years of spending in cash and bonds at retirement.
Worked examples
35 year old with $100,000 saved, $800 a month at 7%, wanting $60,000 a year
Projects to roughly $1.7 million against a $1.5 million target. A surplus, though in today's dollars it is closer to $810,000.
The same person starting at 45 instead of 35
Projects to roughly $700,000. A substantial shortfall, because two decades of compounding have been removed.
Working to 70 instead of 65
Five more years of contributions and growth lift the projection to roughly $2.5 million, about $800,000 more than stopping at 65.
When people use it
- Checking whether you are on track for the retirement income you want
- Testing how much difference an extra $100 a month makes
- Seeing the cost of delaying the start of retirement saving
- Comparing retiring at 60, 65 or 70
- Working out the balance needed to support a specific annual income
Tips
- The 4% rule means you need roughly 25 times your desired annual income. A useful anchor, not a guarantee.
- Working one extra year helps twice: another year of contributions and growth, and one fewer year of drawdown.
- Employer contributions are free money. Contributing enough to capture a full match should come before almost anything else.
- Use a conservative return figure. Planning on 10% and receiving 6% is discovered far too late to fix.
- Compare the today's-dollars figure against your income target. The future-dollars number overstates what it will buy.
- Hold two to three years of spending in cash and bonds at retirement to avoid selling assets during a market fall.
What it assumes, and where it stops being accurate
- A constant return every year. Real sequences vary, and the order of returns matters enormously near retirement.
- Contributions continue unchanged until retirement, with no career breaks, pay rises or periods of part-time work.
- The 4% rule is applied as a flat multiple of 25 without adjusting for retirement length or asset mix.
- Government pensions, Social Security and the Age Pension are excluded, so the target is conservative for those eligible.
- Tax inside the fund and on withdrawal is not modelled, and it differs substantially by country and account type.
- Inflation is applied at 2.5% only to the today's-dollars figure, not to contributions or the income target.
Terms used on this page
- 4% rule
- A planning guideline that withdrawing 4% of a balanced portfolio in year one, indexed to inflation, historically lasted thirty years.
- Drawdown
- The phase of retirement in which you withdraw from savings rather than contributing to them.
- Sequence of returns risk
- The danger that poor returns early in retirement disproportionately reduce how long a portfolio lasts.
- Real return
- Return after inflation. What actually increases your purchasing power.
Questions people ask
- How much do I need to retire?
- The 4% rule suggests about 25 times your desired annual income, so $60,000 a year implies $1.5 million. That figure ignores any government pension, which for many people reduces the private capital required substantially. Treat it as a planning anchor and refine it closer to retirement.
- What is the 4% rule and is it still valid?
- It is the finding that withdrawing 4% of a balanced portfolio in the first year, then adjusting for inflation, historically lasted thirty years in most cases. It came from United States data and a specific asset mix, so it is a starting point rather than a guarantee. Many researchers now suggest a range of roughly 3% to 4.5% depending on circumstances.
- Am I saving enough for retirement?
- Compare the projection against the target above. If there is a shortfall, the levers in order of power are working longer, contributing more, and reducing the income target. Returns are the one variable you cannot control, which is why the others deserve the attention.
- What return rate should I assume?
- Use your fund's published long-term net return for the option you are actually in. A balanced option has historically delivered around 6-8% a year after fees over long periods. Being conservative costs nothing if you are wrong; being optimistic produces a plan that fails quietly for decades.
- Should I include the Age Pension or Social Security?
- This calculator does not, which makes the target conservative. If you expect a government pension, model it separately: a full Australian Age Pension or an average Social Security benefit can reduce the private capital required by hundreds of thousands of dollars. Eligibility is means-tested in Australia and earnings-based in the United States.
- What is sequence of returns risk?
- The risk that a large market fall early in retirement permanently damages the portfolio, because you are withdrawing from depleted assets and they never fully recover. The same fall late in retirement does far less harm. It is why holding a few years of spending in defensive assets at retirement matters more than it does during accumulation.
Use this with
Retirement Savings Calculator answers one part of the question. These pick up where it stops: Superannuation Calculator, Compound Interest Calculator, 401(k) Retirement Calculator and Net Worth Calculator.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- ASIC Moneysmart: how to invest. Independent guidance on returns, risk and fees
- Reserve Bank of Australia: indicator lending rates. Published lending and deposit rates
Retirement Savings Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.