Planning pays, according to the annual Retirement Confidence Surveys conducted by the Employee Benefit Research Institute. Studies show that workers who have attempted a retirement savings calculation often save more than those who have not. Planning also affects the amount required to invest. For every decade that someone delays savings, the required investment to reach a savings goal triples. 35-year olds need to save $219 a month to accumulate $500,000 at age 65 while 55-year olds' monthly savings amount would be $2,421.
Below is a description of key variables in retirement planning calculations:
Retirement Income Goal - How much income must be replaced in retirement? 75%? 90%? 100% or more? The answer is different for everyone. The amount of money needed depends upon a retiree's goals, lifestyle choices, housing costs, and financial resources.
Growth Rate on Retirement Assets - Investment returns depend upon an investor's asset allocation (i.e., percentage of investments in stock, bonds, and cash) and market performance. The worksheet assumes a 2% return after taxes and inflation before and after retirement.
Life Expectancy - The longer the assumed length of someone's retirement, the more money that is needed to save because invested assets will need to last longer.
Retirement Age - The earlier one retires, the more money is needed because there is less time for compound interest to work and because withdrawals begin at an earlier age. Social Security and pension benefits may also be lower. A key consideration is access to health insurance.
Existing Retirement Savings - The more money that someone has already saved, especially in tax-deferred accounts, the less he or she needs to save in the future to reach a savings goal.