Retirement Savings Calculator

Do I Need An Annuity To Make My Retirement Savings Last?

When it comes to investments that provide reliable retirement income, it's hard to beat an immediate annuity. You turn over a lump sum to an insurance company, and the insurer then sends you guaranteed monthly checks for the rest of your life. No other investment can do that. But how much of your savings should go into an immediate annuity?

One strategy is to invest enough in an annuities so your annuity payments plus social security and your pension and investment income cover nearly all essential living expenses such as food, healthcare, transportation, and housing. You can then dip into your portfolio for any discretionary spending. Your portfolio investments will also provide for any unanticipated future expenses and give you an extra measure of protection against inflation. This combination of income sources will give you better odds of sustaining your living standard through retirement.

You can use this retirement calculator to help you to estimate how long your retirement nest egg will last and how much of your savings to allocate to an immediate annuity. It's free, there's not personal information required, and your results are instantaneous. Simply fill in each box or use the sliders to adjust the numbers.

Based on These Entries My Savings Run Out at Age

Understanding the Terms Used

Amount I'll have to invest at the start of retirement ("Starting Balance")

Enter the total amount you've saved for retirement. If you are still working enter the amount you realistically expect to save by the time you retire.

Be sure to add in any after-tax money you will contribute to your nest egg, including funds from the sale of real estate, a business, or any other item of value at or near your retirement date. Use the value of these items today. Your total amount should not include expected inheritances or return on investments.

Annual rate of return on my investments

Enter the annual rate of return you expect from your investments (before taxes).

This actual rate of return can vary widely, depending on the types of investments you select. For instance, the Standard & Poor's 500 (S&P 500) had an annual compounded rate of return of 7% for the most recent 10 year period, including reinvested dividends. The same index had a 10.6% rate of return looking from January 1970 through the end of 2013. The highest 1 year return during that period was 61% (1982-1983). The lowest 12-month return was -43% (2008-2009).

Of course, savings accounts at financial institutions carry significantly lower risk, but may pay as little as 0.25%.

Remember these scenarios are hypothetical, and that future rates of return can't be predicted with certainty. Generally speaking, investments that pay higher rates of return are also subject to greater volatility.

The actual rate of return on investments can vary widely over time, especially for long-term investments. Even if someone was able to accurately predict the annual compounded rate of return, they would not be getting that exact rate year after year. Some years the return would be higher; other years it would be lower. As a result, their money could still run out sooner (or last longer) than the projection indicates. Projecting the return on these types of investments also includes the potential for losing the entire principal on your investment.

Periodic distributions from an account or investment generally give a lower rate of return than the direct amount earned due to fees and other account management costs, so be sure to adjust for them accordingly.

Amount of fixed income I'll get in my 1st year of retirement ("Annual Fixed Income")

Include the total amount you expect to receive from Social Security, company pensions, and other fixed income sources in your first year of retirement.

Amount I'll spend in my 1st year of retirement ("Annual Fixed Expenses")

Using today's dollars, calculate how much you'll want to spend in your first year in retirement.

Be careful not to underestimate living expenses to help prevent serious cash flow shortages.

Rate of inflation my fixed income and expenses will increase by each year

This is the expected inflation rate and is nearly impossible to accurately predict. Enter what you expect as the average long-term inflation rate. An often-referenced measure of inflation is the Consumer Price Index (CPI) which averaged 3% annually from 1925 through 2015. The highest CPI recorded over the last 40 years was 13.5% in 1980.

Because inflation is impossible to predict, we recommend running the calculator with best-case and worst-case estimates for inflation to see how they would affect your estimates.

My tax bracket (federal plus state) in retirement

While the federal income tax table changes every year it is important to estimate how much of your total annual income will be taxable.

Taxable income is different than gross income. Gross income is the sum of all the money you earn in a given year. Taxable income is your gross income minus your standard deductions. These deductions will vary, depending on your filing status. You can file as single, married filing jointly, married filing separately, head of household or a qualified widower. You can also file personal exemptions for your dependents.

When estimating your tax bracket be sure to account for taxes on your investments, interest, and dividends.

Here is the math for the Retirement Savings Calculations
Age Starting
Annual Investment
Annual Fixed
Taxes Year Ending