About the Retirement Ballpark Estimate
Get a quick ballpark estimate of how much you need to save for a comfortable retirement. Enter the income you'll want, what Social Security and any pension will pay, when you plan to retire, how long you want your money to last and what you have saved, and the calculator shows how much to save this year.
It follows a simple six-step retirement worksheet: it turns complicated issues like projected Social Security benefits and investment returns into plain arithmetic, so you can see each step of the estimate.
How it works
Start with the yearly income you'll want, at least 70% of what you earn now. Subtract what Social Security, a traditional pension, part-time work and other sources will pay, and the rest is the gap your savings must fill each year. Someone earning $60,000 who wants 70% ($42,000) and expects $20,000 from Social Security has a gap of $22,000 a year.
That gap is multiplied by a factor for the age you retire and how long you plan for: 15.77 for retiring at 65 with an average woman's life expectancy (age 86), so $22,000 becomes $346,940 needed on the day you retire. Retiring at 55 or 60 adds the Social Security you'll go without until 65. Your savings to date are grown to retirement and taken off: $25,000 with 30 years to go counts as $60,000.
The total left, $286,940 in the example, is multiplied by a last factor to give this year's saving: 0.020 for 30 years, or $5,738.80. Everything is in today's dollars, assumes a constant real return of 3% after inflation, and the yearly amount is meant to rise with inflation each year after.
Assumptions and limits
- A constant real return of 3% after inflation, and wages rising at the same rate as inflation; faster wage growth usually needs a higher savings rate.
- Social Security starts at 65. If you are married, each of you should do your own estimate.
- Average life expectancy is too short in about half of cases; the 75th and 90th percentiles plan for a longer life.
Worked examples
The worksheet's own example
Jane wants $21,000 a year, expects $12,000 from Social Security, retires at 65, has $2,000 saved and 30 years to go: $2,742.60 this year with an average life expectancy.
Planning for a longer life
The $22,000 gap with a 75th percentile male life expectancy (age 89) needs $381,700 at 65, and $6,434 this year.
Starting late
With only 10 years to go, the same plan needs $26,727.40 this year, because the money has less time to grow.
How to use the Retirement Ballpark Estimate
- Set your income goal. Your current income and the share of it you'll want in retirement.
- Add other retirement income. Social Security, a pension, part-time work and other income.
- Choose ages and savings. Retirement age, life expectancy, savings to date and years to go.
Frequently asked questions
How much income will I need in retirement?
A common rule is at least 70% of your current gross income to keep your standard of living. Plan for 80% to 90% if you'll pay your own Medicare premiums and some medical costs, and 100% to 120% if you want more travel or will cover all health costs.
Why does life expectancy change the answer so much?
The longer you live, the more years your savings must pay for. Average life expectancy is too short for about half of people, so planning to age 92 or 97 means your money lasts in three out of four or nine out of ten cases.
What if I retire before 65?
The estimate assumes Social Security starts at 65, so retiring at 55 or 60 adds the benefits you'll have to cover yourself until then: 8.8 times your yearly benefit for retiring at 55 and 4.7 times for retiring at 60.
Why is the result in today's dollars?
Using today's dollars keeps the numbers easy to compare with your current income. The 3% return is after inflation, and the amount to save this year is meant to grow with inflation each year, so your saving keeps the same buying power.
How accurate is a ballpark estimate?
It is a quick first estimate, not a detailed plan. It simplifies investment returns, wage growth and Social Security, so recalculate it every year and as your salary changes, and use a detailed retirement planner or adviser for decisions.
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