# Early Retirement Calculator

## Creating a Plan to Retire Early

This calculator can be used to estimate the amount of money to save each month and the assets required to retire early. The calculator needs a total of eight inputs, including:

• The user’s current age, or the age at which the retirement planning will begin
• The targeted retirement age
• An estimate of the user’s life expectancy, which will be used to determine how long the retirement fund needs to provide income
• The amount of income desired, once retired
• The anticipated long-term rate of inflation, which is used to adjust today’s currency values to future values
• Any assets currently set aside for retirement
• The anticipated rate of return on the assets held in the retirement account
• Any other potential source of retirement income, such as a pension plan or Social Security in the United States

The calculator then provides the user with four sets of outputs:

• The future value of income that needs to be derived from assets in the retirement account
• The future value of income derived from other sources, which is found by indexing the other potential source of income by the inflation rate
• The future value of the desired annual income
• The minimum savings section includes the total assets and the monthly savings target to provide the desired income until the life expectancy age is reached
• The maintain assets section includes the monthly savings targets and retirement assets needed to provide the desired income while not decreasing the balance in the retirement account
• Finally, the optimal savings allows for a 4% withdrawal rate to provide the modeled retirement income

### What is Early Retirement Anyway?

Early retirement is when a person leaves the workforce earlier that a statutory age. If you were born after 1960 and live in the United States, then early retirement would be before age 67. That’s when you’d start receiving your full monthly Social Security benefits. It is possible to retire before age 67 and receive Social Security benefits; however, there is a “penalty” for doing so. That reduction in benefits isn’t really a penalty, it merely reflects the additional payments made to all beneficiaries.

To some of us, retiring at 62 doesn’t seem all that early. In fact, that age is a very subjective and personal opinion. Fortunately, this calculator can help you to crunch the numbers and see what it takes to retire early.

### Three Different Retirement Scenarios

The calculator makes a couple of important assumptions, respecting the time value of money concept. The first assumption is the desired income entered are in today’s currency and to maintain that standard of living that value needs to be escalated by the anticipated rate of inflation. The same holds true for the other annual income variable. Unless that source is known to increase with the rate of inflation, a better approach would be to leave that information blank (zero).

The calculator then figures out how much assets are needed to generate the targeted income level. It is here the calculator provides three distinct values:

• Minimum Savings: this is the minimum amount of assets required to provide the desired retirement income at the selected rate of return. The balance in the retirement account will be zero when the life expectancy age is reached.
• Maintain Assets: this scenario not only provides the desired income at the selected rate of return, but the balance of the account never reaches zero. In fact, the balance in the account does not change over time. When the life expectance age is reach, the asset value would be the left to the owner’s heirs.
• Optimal Savings: this last scenario models a simple retirement rule of thumb that has to do with “safe” withdrawals from an account. The 4% rule states retirees can withdraw an amount equal to 4% of their savings during anyone one year and adjust for inflation for the next 30 years. It’s important to note this is the only scenario that allows for inflation once the retirement age is reached, which is why this scenario is so important to consider as part of any future plans.