Overview

Main Menu Name: Retire

Calculates the inflation-adjusted monthly income necessary to meet specified retirement needs, the total income available from projected sources, the surplus or deficit amount of income, the capital required to generate any income deficit, the present value of the capital amount needed to make up any deficit, and the annual payment needed to accumulate the specified capital amount.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

The task of providing adequate income at retirement should be divided into three parts:

1. Income from governmental retirement plans.
2. Income from employer-based retirement plans.
3. Income from personal assets.

Taxation and inflation are two factors that must be considered in planning financial independence at retirement. It is therefore important to begin with a "Desired Monthly Income," which considers both inflation and taxation during retirement years.

During our working years most of us can depend on regular wage and salary increases to keep up with inflation. Once retired, however, many income sources will become fixed in amount and be subject to a loss of purchasing power over time. This calculation allows you the option to build in an annual increase in desired income after retirement. The resulting capital need is increased, but the impact on a client's financial planning will be more realistic.

Retirement security must not depend on governmental or employer-based programs; social security should at best be thought of as a guaranteed income floor, and employer-sponsored programs have often failed due to inadequate funding. An individual can only rely on an adequate capital sum amassed through a disciplined, diversified, and long-term personal investment program.

Why should I use this calculator?

• To project monthly income at retirement.
• To critically analyze the importance of various sources of retirement income.
• To compare the effects of lower and higher rates of return on invested capital.
• To evaluate the risk-reward parameters (you should run "worst case-best case-probable case" printouts to establish a range for planning).
• To establish a realistic retirement timetable (or set more modest monetary goals).

Getting Started

The task of providing adequate income at retirement should be divided into three parts:

1. Income from governmental retirement plans.
2. Income from employer-based retirement plans.
3. Income from personal assets.

Taxation and inflation are two factors that must be considered in planning financial independence at retirement. It is therefore important to begin with a "Desired Monthly Income" which considers both inflation and taxation during retirement years.

During our working years most of us can depend on regular wage and salary increases to keep up with inflation. Once retired, however, many income sources will become fixed in amount and be subject to a loss of purchasing power over time. This calculation allows you the option to build in an annual increase in desired income after retirement. The resulting capital need is increased, but the impact on a client's financial planning will be more realistic.

Retirement security must not depend on governmental or employer-based programs; social security should at best be thought of as a guaranteed income floor, and employer-sponsored programs have often failed due to inadequate funding. An individual can only rely on an adequate capital sum amassed through a disciplined, diversified, and long-term personal investment program.

Entering Data

Enter information into the General tab and the Source of Income tab to get a thorough analysis.

General Tab

1. Name Enter the client's name.
2. Present Age Enter the present age of the client.
3. Desired Retirement Age Enter the desired retirement age of the client.
4. Desired Monthly Retirement Income Enter the monthly income that the client wishes to have during retirement.
5. Number of Years Retirement Payments Should Last Enter the number of years that the retirement payments should last.
6. Estimated After-tax Rate of Return Enter the estimated after-tax rate of return on investments.
7. Estimated Inflation Rate Enter the estimated inflation rate.
8. Desired Annual Increase After Retirement Enter the desired annual increase after retirement. Enter the value as a percentage.

Source of Income Tab

1. Estimated Monthly Income Enter the estimated monthly income for each item on the list.
2. Age Benefits Begin Enter the age at which a benefits will begin for any applicable items.

Results

The program calculates the number of years until retirement, the monthly income needed after inflation adjustment, the balance, if any, necessary to meet the specified income goal, and the annual and monthly amounts that must be set aside in addition to currently available sources to meet the specified income objectives.

The Schedule tab takes the total income that would be available from present income producing sources, and subtracts it from the desired income for each year, and the resulting dollar amount is what is needed to reach the desired income.