Retirement - This is the stage of life many people DREAM about! What do you wish to do with your retirement? Travel, volunteer more for charities that mean something to you, buy a farm and focus on that more, spend more time with grandchildren; there are SO many incredible options. How will you spend your time? However you choose to spend your retirement, there's some work to do before you get there. Keep reading this week's blog to learn what it takes to work towards a SECURE retirement. For information on opening an IRA at the Lake of the Ozarks, call First Bank of the Lake today at (573) 348-2265.
Do You Know What It Takes to Work Towards a Secure Retirement?
Use this calculator to help you create your retirement plan. View your retirement savings balance and your withdrawals for each year until the end of your retirement. Social Security is calculated on a sliding scale based on your income. Including a non-working spouse in your plan increases your Social Security benefits up to, but not over, the maximum.
Definitions
Current age
Your current age.
Age at retirement
Age at which you plan to retire. This calculator assumes that the year you retire, you do not make any contributions to your retirement savings. For example, if you retire at age 65, your last contribution occurs when you are actually age 64. This calculator also assumes that you make your entire contribution at the end of each year.
Household income
Your total household income. If you are married, this should include your spouse's income.
Current retirement savings
Total amount that you currently have saved toward your retirement. Include all sources of retirement savings such as 401(k)s, IRAs and annuities.
Rate of return before retirement
This is the annual rate of return you expect from your retirement savings and investments. This should also be an after-tax rate of return if the majority of your retirement savings is not in a tax-deferred account such as a 403(b), 401(k), 457(b), annuity or IRA. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2020, had an annual compounded rate of return of 13.8%, including reinvestment of dividends. From January 1, 1971 to December 31st 2020, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.8% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Rate of return during retirement
This is the annual rate of return you expect from your savings and investments during retirement. This should also be an after-tax rate of return if the majority of your retirement savings is not in a tax-deferred account such as a 403(b), 401(k), 457(b), annuity or IRA. It is often lower than the return earned before retirement due to more conservative investment choices to help insure a steady flow of income. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2020, had an annual compounded rate of return of 13.8%, including reinvestment of dividends. From January 1, 1971 to December 31st 2020, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.8% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Percent of income to save
The percentage of your annual income you plan to contribute to your retirement savings. This should reflect the total you save toward your retirement. This should include any 403(b), 401(k), or 457(b) plans and your employer's contribution to these plans. It should also include any other retirement accounts such as an IRA or a Roth IRA and any retirement savings in non-retirement accounts. This calculator assumes that you make one annual contribution at the end of each year, and any withdrawals happen once per year at the end of the year.
Expected income increase
Annual percent increase you expect in your household income.
Years of retirement income
Total number of years you expect to use your retirement income.
Pre-retirement income desired in retirement
The percentage of your pre-retirement household income you think you will need in retirement. This amount is based on the household income earned during the year immediately before your retirement. You can change this amount to be as low as 40% and as high as 160%. The percentage should reflect an after-tax amount if the majority of your retirement savings is not in a tax-deferred savings account such as a 401(k), IRA or other tax-deferred account.
Expected rate of inflation
This is what you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2020 the CPI has a long-term average of 2.9% annually. Over the last 40 years the highest CPI recorded was 13.5% in 1980. For 2020, the last full year available, the CPI was 1.2% annually as reported by the U.S. Bureau of Labor Statistics.
Married checkbox
Check this box if you are married. Married couples have a higher maximum Social Security benefit than single wage earners.
Include Social Security checkbox
Check this box if you wish to include Social Security benefits in your retirement planning. Social Security is based on a sliding scale depending on your income, how long you work and at what age you retire. Social Security benefits automatically increase each year based on increases in the Consumer Price Index. Including a spouse increases your Social Security benefits by 1.5 times your individual estimated benefit. Please note that this calculator assumes that only one of the spouses work. Benefits could be different if your spouse worked and earned a benefit higher than one half of your benefit. If you are a married couple, and both spouses work, you may need to run the calculation twice – once for each spouse and their respective income. This calculator provides only an estimate of your benefits.
The calculations use the 2021 FICA income limit of $142,800 with an annual maximum Social Security benefit of $37,776 ($3,148 per month) for a single person and 1.5 times this amount for a married couple. To receive the maximum benefit would require earning the maximum FICA income for nearly your entire career. You would also need to begin receiving benefits at your full retirement age of 66 or 67 (depending on your birthdate). This calculator rounds your age of full Social Security benefits to the next highest full year. If your birthdate is between 1955 and 1959 your actual full retirement age for Social Security is 66 plus two months for each year after 1955. Your actual benefit may be lower or higher depending on your work history and the complete compensation rules used by Social Security.
Have Any Questions On Retirement?
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