Retirement Planning
Will your savings be enough? See what they grow to by the time you retire, how much you need for the income you want, the monthly saving that gets you there and the earliest age you could stop working. Already retired? Find out how long your money lasts and how much you can safely take out each month. All amounts are in today’s money, so inflation is taken care of.
How Does Retirement Planning Work?
A retirement plan has two phases. While you save, your money grows with every deposit and with the return on what is already there. Once you retire, you take money out every month, while what is left keeps earning a return. The question is whether the pot you build up in the first phase is big enough to last through the second.
Prices rise over time, so €1 000 in thirty years buys much less than today. That is why this calculator works in today’s money: it uses the real return, the part of the return above inflation. Every amount it shows is what that money would buy now. The 4% rule is a well-known rule of thumb: if you take out 4% of your savings in the first year and then the same amount adjusted for inflation, your money has historically lasted at least 30 years. In other words, you need about 25 times the yearly income your savings must provide.
Your Savings Over Your Life
balanceYear by Year
| Age | Saved / taken out | Return | Savings (today’s money) | Savings (money of then) |
|---|
Worked Techniques
What your money earns above inflation. Simply subtracting (6% − 2% = 4%) is a close estimate; dividing is exact. Every amount in today’s money grows at this rate.
The present value of N monthly withdrawals W, each taken at the start of a month, with i the real return per month. With this amount the savings reach exactly zero at the end of the last month.
A rule of thumb from studies of US stock and bond returns since 1926: a first-year withdrawal of 4%, then raised with inflation, lasted at least 30 years in almost every period. It is a starting point, not a guarantee.
The number of monthly withdrawals W that savings B can pay. When B i ≥ W(1 + i), the return alone pays for the withdrawals and the money never runs out.
Sources & Verification
- W. P. Bengen, “Determining Withdrawal Rates Using Historical Data”, Journal of Financial Planning 7(4), 1994, pp. 171–180 — the origin of the 4% rule.
- P. L. Cooley, C. M. Hubbard & D. T. Walz, “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable”, AAII Journal 20(2), 1998, pp. 16–21 — the “Trinity study”.
- R. A. Brealey, S. C. Myers & F. Allen, Principles of Corporate Finance, 13th ed., McGraw-Hill Education, 2020 — Ch. 2 (annuities, real and nominal rates).
Frequently Asked Questions
How much do I need to retire?
Start from the income you want each month, subtract your pension and other income, and work out how much savings it takes to pay the rest until the age your money should last to. That amount is the present value of all those withdrawals, using the return above inflation.
Example: you want 3 000 a month, your pension pays 1 200, so 1 800 a month must come from savings, from 67 to 90. At a 6% return and 2% inflation (3.92% real) you need about 330 000 at 67, in today’s money. The calculator gives this as Needed at retirement, next to what your savings will grow to.
What is the 4% rule?
A rule of thumb for how much you can take out of your savings: 4% in the first year, then the same amount each year adjusted for inflation. In studies of US stock and bond returns since 1926 (Bengen 1994, the Trinity study 1998), this lasted at least 30 years in almost every period.
Turned around, it says you need about 25 times the yearly income your savings must provide: 25 × 21 600 = 540 000 for 1 800 a month. It is a starting point, not a guarantee: for a retirement longer than 30 years, or with lower returns, a lower rate is safer. The calculator shows the 4% figure next to its own calculation with your return.
How long will my savings last?
Choose Already retired, enter your savings, the income you want and any pension. The calculator gives the age at which the money runs out, or tells you it never runs out when the return pays for the withdrawals. Example: 400 000, taking 2 000 a month at a 5% return and 2% inflation, lasts about 22.7 years: from 67 until about 89 years and 9 months. To make it last until 95, you could take out about 1 736 a month.
How much should I save per month for retirement?
Enter your plan and read Monthly saving needed: the monthly amount that makes your savings exactly enough at retirement. At 35 with 30 000 saved, retiring at 67 with 1 800 a month to come from savings until 90, that is about 301 a month in today’s money. Starting at 50 with 50 000, it is about 814 a month: the later you start, the less time the return has to work for you.
When can I retire?
The calculator gives the Earliest retirement age: the first month at which your savings, with the monthly saving you put in until then, are enough to pay the income you want until the age you chose. In the first example (35, saving 400 a month) that is 64 years and 4 months, while the plan says 67.
Why does the calculator use today’s money?
Because a number of euros in 30 years says little on its own: at 2% inflation, 1 000 then buys what about 552 buys now. Working in today’s money means the savings, the income you want and the monthly saving all keep pace with inflation, and the return that counts is the real return, (1 + return) ÷ (1 + inflation) − 1. The savings at retirement are also shown in the money of then: 404 772 today’s money is about 762 810 in 32 years at 2% inflation. More on this in the Inflation calculator.
What return should I fill in?
That depends on how your money is invested, and nobody knows future returns. The calculator uses one fixed return every year, while real returns go up and down; a bad few years just after you retire hurt the most. Try a lower return to see how much your plan depends on it. For learning, not financial advice.
Does it include taxes and fees?
No. Subtract yearly fees from the return (a 6% return with 0.5% fees is 5.5%), and enter the income you want after tax if your withdrawals are taxed. For a plain savings account with regular deposits, see the Compound Interest calculator.