Know Your Number

What does “today’s dollars” mean?

All values you enter will be in today’s dollars, which means you do not need to adjust them for inflation – we will do that for you. For example, if you spend $5,000 per month now, and will spend 80% of that in retirement, your retirement spending would be $4,000 in today’s dollars. If you plan to retire in 30 years and inflation averages 3% annually, you will actually be spending close to $10,000 per month after inflation, or in future dollars. But don’t worry about that, the tool factors in inflation for you.

What if I don’t know when I want to retire?

If you are younger and decades away from retirement, you may not have a concrete retirement age in your mind yet. If that is the case, feel free to try out different ages in the tool to see what’s possible. You may find you need to save more to retire around when you want, or you could find that you are actually on-track to retire earlier than expected!

The tool says I can retire a lot earlier than I want to. What should I do with that information?

First of all, congratulations! That’s a great problem to have because it gives you flexibility. The tool simply tells you the earliest age you will have the ability to retire based on your inputs. If the age is much earlier than you would like to retire, you have options. You could potentially spend more in retirement, take your foot off the pedal and invest less now, or consider working fewer hours. Adjust your inputs to see how changing those variables impacts your number.

How do I account for Social Security benefits or a pension?

If you plan to retire at the same age as you start drawing Social Security or pension benefits, you can simply subtract your monthly benefit amount from your monthly retirement spending. If you plan to start drawing benefits a certain number of years after you retire, we suggest subtracting a weighted average benefit amount from your monthly retirement spending.

For example: Dale plans to retire at 55 with a spending need of $10,000 per month. At age 67, he will start drawing Social Security benefits of $3,000 per month. He expects to live to age 95. This means for 12 years Dave will receive $0 from Social Security and for 28 years he will receive $3,000 in benefits. In other words, Dave will receive $3,000 for 70% of years in retirement (28/40), which gives us a weighted average benefit amount of $2,100 ($3,000 x 0.7) for a monthly retirement need of $7,900 ($10,000 – $2,100).

I changed my target retirement age, but nothing else. Why has my actual retirement age changed?

The calculator sets a safe withdrawal rate (SWR) based on the length of time you anticipate spending in retirement. If you adjust your target retirement age, this will impact the length of retirement, which could change your SWR. We suggest expanding to “Advanced Mode” to see how the SWR has changed, and adjust it manually if necessary.

Please note that the SWR is static based on your target retirement age. It does not change if your actual retirement age is different from your target age. However, you can manually adjust this variable as necessary.

How are the default rate of return and inflation values determined?

The default rate of return is determined based on your starting age. If you start at 20 or younger, this will default to 10%, at 21, 9.9%, at 22, 9.8%, and so on until reaching a terminal rate of return of 5.5% at age 65. Please be aware that the rate of return does not change as you get older, and is based on your starting age. So if you are currently age 40, your default rate of return used for all calculations will be 8%. These values are based on historical market returns and assumes your portfolio is more conservative if you are older. You can adjust the rate of return manually.

Inflation is set at 3% regardless of your age, and is based on the historical average inflation rate in the United States. You can adjust this number manually as well.