## Calculating Future Retirement Income

This calculator can be used to model various scenarios involving retirement funds and the income generated from those funds. The calculator needs a total of nine inputs, including:

- The user’s current age or the age at which the plan will start
- The user’s expected, or desired, retirement age
- The user’s life expectancy, which is used to calculate how long the retirement funds need to provide income
- Any funds currently set aside for retirement
- Annual contributions to a retirement account
- Annual increases to those retirement contributions. More on how to use this feature is explained later
- The expected annual return on the funds accumulating in the retirement account
- The desired annual income, once retired, to be generated by the retirement funds
- An expected rate of inflation. More on how to use this feature is explained later

The calculator then provides the user with two sets of analysis:

- The total of all retirement funds when the expected retirement age is reached
- The desired income at retirement (not adjusted for inflation and adjusted for inflation)
- The amount of income it is possible to derive from the retirement funds (not adjusted for inflation and adjusted for inflation)
- Finally, whether or not there will be a surplus of income or a shortfall, based on the modeled inputs

### Projecting Retirement Income

Trying to predict, calculate, or project retirement income is not a “one and done” exercise. While it’s not possible to turn back the clock, laying out a plan early in your career has advantages. Saving while your young makes it much easier to accumulate enough funds to provide sufficient income once retired. Waiting until you’re over fifty-five to start saving only gives you ten years of funding while starting at twenty-five gives you forty. But as the saying goes, it’s never too late.

So, why shouldn’t this be a one and done exercise? Because even the best of plans need course adjusting over time. Maybe purchasing a new home means more expenses in retirement. Perhaps you’d like to do more traveling than originally planned. The funds in your account may have over-performed or under-performed relative to the rate of return you were expecting. Of the nine variables used by this calculator, only one is certain – your current age. For these reasons, it’s great to create a plan, but it’s also important to revisit that plan to see if it’s progressing as originally modeled.

### Variables Used by this Calculator

The three age variables are straightforward. The difference between your current age and retirement age tells us how many years you can save funds. While the difference between your retirement age and life expectancy tells us how many years you need income from your retirement funds.

The next four variables are used to calculate the amount of funding you will have when you reach retirement. We need to know how much money you’ve saved already (Current Retirement Funds), and how much you’ll contribute each year. The Increase per Year value tells us how much to increase the Annual Contribution each year. For example, if you start with an Annual Contribution value of 1,000 and set the Increase per Year at 10%, the calculator will model 1,000 in year one, then 1,100 (1,000 + 1,000 x 0.1) in year two, then 1,210 (1,100 + 1,100 x 0.1) in year three and so on. This is an important variable and tactic to employ as part of your retirement plan. As your income level increases, your lifestyle can improve (meaning you need more income in retirement to maintain that lifestyle) and you can also afford to set more money aside each year.

The final two variables provide the calculator with the targets for retirement income. The Desired Annual Income is just as described. The Expected Rate of Inflation is used to increase the Desired Annual Income. For example, let’s say today you make 100,00 per year and you think you’ll need 80% of that value, or 80,000 in retirement. Well, that 80,000 today will not have the same purchasing power as 80,000 thirty years from now. What the calculator does is use the Expected Rate of Inflation value to increase that 80,000.

So, the calculator can be used one of two ways. If you really think you know how much income you’ll need in retirement, put that value in the Desired Annual Income placeholder and make the Expected Rate of Inflation zero. If you know how much income you want, in today’s value, then put that value in the Desired Annual Income placeholder and enter a value for the Expected Rate of Inflation.