Planning for retirement can be complex and having a calculator to help you assess your finances may remove the guesswork usually involved. By understanding the connection between your social security benefits, investment returns, and the adjustments needed for economic inflation, you can more accurately plan your savings and ensure the retirement that you have longed for. Let’s begin by exploring what the calculator may be used for and then continue on to how you may use it.
Calculate the longevity of your retirement savings with social security
By evaluating your current income with your present pursuit of savings along with any active investments, you may deduce how much will be set-aside for your retirement. Then, exploring the relationship between your monetary requirements during retirement, and the years you will require retirement income, you will be provided a guide on how to budget your savings and properly utilize your social security benefits.
Using the social security calculator
In order to use the social security calculator to its best potential, you must be familiar with your current financial situation. This includes being honest about your household income, current retirement savings, and the amount you wish to continually contribute to your savings account. For accurate calculations you should include knowledge of any potential salary increases until your age of planned retirement, along with monetary requirements during your retirement years.
Proper retirement planning also requires information on current investments such as your expected rate of return along with any modifications you would like to make to your investments once you have retired. Because this calculator allows adjustments for inflation, some basic knowledge on economics may be helpful, but is not compulsory.
When this information is given to the social security calculator it will present you with the value of your savings upon retirement, the amount of time it will last based on your expected lifestyle, and continue to provide an in depth comparison of your savings with and without social security benefits.
Please continue reading for more detailed explanations on the usage of this calculator.
How accurate is the social security calculator?
If you have a comprehensive understanding of your finances the social security calculator will provide accurate results. However, the dynamic and unpredictable nature of life is such that many things may change in your retirement plan prior to retirement even commencing. This can mean unexpected changes in salaries, medical emergencies, or even poor investment performances.
Therefore, as your financial situation changes it will be required for you to re-evaluate your calculations.
How to use the social security calculator
Using the social security calculator is very straightforward as long as you can provide some basic information about yourself and your retirement plan- beginning with your current age, and planned age of retirement.
1. You simply add your current age and expected age of retirement to the first and second lines of the calculator, respectively. You may use the up or down arrows to assist you entering this information easily.
2. On the third line of the calculator you should add your household income. This will be combined with your spouse’s income if you are married, or simply identify your own if you are single.
3. Then you may add your current retirement savings to the fourth line of the calculator. This is the amount that you currently have in your savings account that is allocated towards your retirement fund. Here you may include all sources of retirement savings such as 401(k), IRAs, and Annuities.
4. On the fifth line of the calculator is the percent of income to save. This is the percentage of your annual earnings you wish to set aside for your retirement and is important that you allocate an honest estimation here. The calculator functions to include these additional savings in your overall retirement planning, therefore, any discrepancies may greatly skew your results.
5. On the sixth line you should include any expected salary increase you may anticipate annually throughout the longevity of your career, as expressed by a percentage. If unsure, it is best to leave this field at a value of 0, and re-evaluate as your income changes.
6. Continuing on to the seventh line you should identify the percent of income at retirement that you will require. Here you must assess your expected retirement expenses, to quantify how much income you will require annually, which may be expressed as a percentage of your current annual income. Generally speaking, some studies have shown that retirees require between 67% to 80% of income replacement at retirement.
However, as individual needs will vary it is important to take into account potential long term care and living expenditures, medical costs, and allow some allocation towards leisure expenses.
7. To conclude your retirement plan on the eighth line, you must incorporate the years of retirement income that you will need. That is to say, the total number of years you wish to have your savings last you in retirement.
Once your retirement plan has been fully documented, you may continue to detail your investment returns.
This calculator assumes that your current retirement savings will be placed into an active investment in order for the funds to grow and accumulate for a number of years until retirement. If you have no interest, or prefer not to invest your savings, you may change the next two inputs to a value of zero and skip to the eleventh line.
8. If you choose to pursue investments, on the ninth line you should add your rate of return before retirement as expressed by a percentage. This is the current rate of return you are expecting on your investment and directly correlates with the risk level involved.9. You may choose to adjust your rate of return during retirement to a lower risk investment, so as to still make some passive income but not jeopardize your entire livelihood in the process. You may express this as a percentage of return on the tenth line of the calculator.10. Then, on the eleventh line you may adjust your earnings towards an expected rate of inflation. This is used primarily to calculate increases in your retirement expenses and increases in social security benefits as well.If you are unfamiliar with economics, the latest expectation model released by the Federal Reserve Bank of Cleveland reports a forecasted inflation of approximately 2 percent on average over the next decade. However, this information is subject to change as it is simply a future prediction.
11. And finally, for those making calculations with a spouse, check the box next to Are you married? This will increase the level of social security benefits you are eligible to receive.
Once all this information has been given to the social security calculator, you will be presented with some valuable information.
Your social security results
Below the retirement plan and investment inputs you will receive a prompt of how long your retirement savings will last without social security. Indeed, social security may help to prolong your retirement funds.
Below that, you may view a graph of your 401(k) savings. This calculator assumes that your earnings are based off of a 401(k) retirement account, however this graph indicates how your retirement savings from line four have accumulated for retirement based on the information you provided.
This graph is able to visually contrast your savings with social security, and without social security, based on how many years each will last you respectively.
Next to this graph is a detailed table called your retirement savings balances, which itemizes your retirement savings with social security and without social security throughout their entirety. This table will highlight how your savings will grow until you reach retirement, and then allocate the funds to each year depending on your lifestyle preferences. All the columns in this table are fully adjustable for your convenience.
It is worth noting that if your retirement funds run out prematurely, you may use this calculator as a tool to make adjustments to your retirement plan.
Extend the longevity of your retirement fundBy making minor changes in your retirement plan and investment returns you may strategize a way to extend your retirement savings. This may mean allocating a higher percentage of your income to savings, reducing the percent of income at retirement, or pursuing investments with higher returns.
Ultimately it requires an honest and comprehensive analysis of your needs during retirement and the proper adjustments to ensure comfort in your later years.
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