Retirement Nest Egg Calculator
Use our free retirement nest egg calculator to find out if you are on pace to meet your retirement goal.
How Much Money to Retire?
When it comes to retirement income planning there are no one-size fits all answers because every situation is unique. Let’s assume you used our Retirement Nest Egg Calculator and now know your “retirement nest egg” will be $1,200,000 by the time you reach your desired retirement age of 67.
So now you know approximately how much money you’ll have at retirement but likely have more questions?
- How much monthly income will I need in retirement
- How much income will my retirement savings generate safely without risk of outliving my assets?
According to AARP, one common rule of thumb is that you’ll need 70% to 80% of your pre-retirement income after you retire. So if you made an average of $100,000 per year during your working years, you may only need $70,000 to $80,000 in retirement. This is because any student loans are hopefully paid off as well as your mortgage. It also takes into consideration you are likely “empty nesters” by the time you reach retirement age.
But it’s important to understand that your personal retirement income needs could be different than these estimates. That math could look different, for example, if you’ll have a mortgage payment for several years of your retirement or you plan to do a lot of traveling.
Depending on how much you plan to spend per year in retirement, you could need to replace 100% (or more) of your pre-retirement income.
Retirement "Income Gap"
You can use this retirement income planning worksheet to estimate how much monthly income you will need in retirement. After completing the worksheet you’ll be left with a monthly income gap. This gap is determined by subtracting your living expenses from your guaranteed monthly income including Social Security, any Pensions and/ or annuity income.
Here is a link to a helpful Social Security Benefit Calculator.
Once you’ve determined your monthly income shortfall you’ll be able to easily calculate the additional annual income needed in retirement (multiply monthly shortage by 12). Ideally, you will have sufficient assets to purchase an income annuity that will pay you a monthly income guaranteed for as long as you live, or as long as you or your spouse live. Below are the different annuity payment types currently available.
|Types||Single Premium Immediate Annuity (SPIA)||Deferred Immediate Annuity (DIA)||Qualified Longevity Annuity Contract (QLAC)|
|Starts||Within 12 Months||In more than 12 months||In more than 12 months, after age 72, and by 85|
|Provides||Guaranteed income for the rest of your life,|
or for a certain period
|Guaranteed income for the rest of your life,|
or for a certain period
|Guaranteed income for the rest of your life|
|Funded With||Qualified (IRA) or non-qualified||Qualified (IRA) or non-qualified||Only qualified money (IRAs)
|Income Annuity Payout Option||Annual Income Payout|
|10-year period certain||$9,805.32
|Life only - Male age 65||$5,354.64|
|Life with 10-year certain||$5,231.64|
|Life with 20-year certain||$4,808.88|
As of August 15, 2020 a $100K Single Premium Immediate Annuity would generate $5,354.64 of guaranteed lifetime income annually for a 65 year old male. That amount is assuming income payments begin 30 days after purchasing your annuity contract.
If you are able to plan ahead and purchase an income annuity years prior to retiring, this income amount can be substantially higher. These types of annuities are called Deferred Income Annuities (DIA). You could also purchase a Fixed Index Annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider and accomplish the same goal.
Pros of using a portion of your retirement nest egg to purchase an income annuity are:
- 100% confidence level you will not outlive your money
- Mitigates longevity risk because your monthly “paycheck” is guaranteed regardless of how long you live
- Mitigates Sequence of Returns risk because your monthly “paycheck” is not withdrawn from your retirement savings that is invested in the markets.
Today’s column addresses questions about withdrawing an application for a retirement benefit; is file and suspend Social Security a possibility and when divorced spousal benefits