The Retirement Question
Retirement planning comes down to one arithmetic problem: accumulate a pot large enough that its returns plus its gradual depletion cover your spending for as long as you live. Everything else — account types, tax treatment, fund selection — is optimisation around that core.
The calculator runs the problem in two phases. During accumulation it grows your savings at the pre-retirement return and adds each year's contribution. During drawdown it applies the post-retirement return and subtracts an annual withdrawal that rises with inflation, then reports whether the money lasts.
How Much Do You Need?
The standard starting point is a replacement ratio: the share of final salary needed to maintain your standard of living. Most planners use 70–80%, on the grounds that retirees no longer save for retirement, no longer pay payroll taxes, and often have no mortgage or commute — offset by higher healthcare costs.
Subtract other guaranteed income — Social Security, a pension, rental income — and the remainder is what your savings must produce.
Pot needed = Annual gap × (1 − (1 + g)−n) ÷ g
where g is the real return (return adjusted for inflation) and n is the years in retirement
The 4% Rule
A widely cited shortcut says you can withdraw 4% of the pot in the first year and adjust for inflation thereafter, with a high probability of lasting 30 years. Equivalently, the pot needs to be 25 times the first year's withdrawal.
It came from William Bengen's 1994 study of historical U.S. market data and later Trinity University research. It is a useful anchor and a poor law. Its assumptions are a 30-year horizon, a 50–75% stock allocation, U.S. market history, and no fees. Longer retirements, lower expected returns, international markets or a 1% advisory fee all push the safe figure below 4% — some researchers now suggest 3.3–3.7%. The calculator does not use the rule; it models the actual drawdown, which is more informative.
Why Starting Early Dominates Everything
Contributing $12,000 a year at a 7% return until age 65:
| Start at age | Years | Total contributed | Value at 65 |
|---|---|---|---|
| 25 | 40 | $480,000 | $2,395,621 |
| 30 | 35 | $420,000 | $1,658,843 |
| 35 | 30 | $360,000 | $1,133,529 |
| 40 | 25 | $300,000 | $758,988 |
| 45 | 20 | $240,000 | $491,946 |
| 50 | 15 | $180,000 | $301,548 |
Starting at 25 instead of 35 costs $120,000 in extra contributions and produces roughly $1 million more. No investment selection, fee reduction or tax strategy comes close to the effect of an extra decade.
How Much to Save Each Year
On an $80,000 income over 30 years at 7%:
| Saving rate | Per year | Value after 30 years |
|---|---|---|
| 5% | $4,000 | $377,843 |
| 10% | $8,000 | $755,686 |
| 15% | $12,000 | $1,133,529 |
| 20% | $16,000 | $1,511,373 |
| 25% | $20,000 | $1,889,216 |
The conventional advice of 15% including employer match is what these numbers support. Below 10%, most people face either a much later retirement or a substantially reduced standard of living.
Account Types (United States)
| Account | Tax treatment | Best when |
|---|---|---|
| Traditional 401(k) / IRA | Deduct now, taxed on withdrawal | Your tax rate will be lower in retirement |
| Roth 401(k) / IRA | Taxed now, tax-free withdrawals | Your tax rate will be higher later |
| HSA | Untaxed in, growing, and out for medical costs | Always, if eligible — the only triple-tax-free account |
| Taxable brokerage | Taxed on dividends and capital gains | After tax-advantaged accounts are full |
The employer match is the highest-return item in personal finance — an immediate 50–100% on the matched portion. Contributing less than the full match is leaving unconditional money behind.
Risks the Model Cannot Show
- Sequence of returns risk. A market crash in the first years of retirement is far more damaging than the same crash later, because withdrawals lock in the losses. A constant-return model cannot express this; in practice it argues for holding two to three years of spending in cash or bonds at retirement.
- Longevity risk. Life expectancy is an average. A 65-year-old couple has roughly a 50% chance that one partner reaches 92. Planning to average life expectancy leaves half of people short.
- Healthcare and long-term care. Frequently the largest unplanned expense, and it rises faster than general inflation.
- Inflation surprises. A sustained period above the assumed rate compounds against a fixed pot.
Frequently Asked Questions
What return should I assume?
Most planners use 6–7% nominal before retirement for a stock-heavy portfolio and 4–5% after, when allocation is more conservative. Using lower numbers than history suggests builds in a margin of safety.
Should I include Social Security?
Yes, at a realistic figure. Your Social Security statement gives an estimate at each claiming age. Some planners discount it by 20–25% for those decades from retiring, to reflect possible benefit changes.
The calculator says I run out of money. What now?
Four levers exist: save more each year, work longer, spend less in retirement, or accept more investment risk. Working two extra years is often the single most powerful adjustment, because it adds contributions and returns while removing two years of withdrawals.
Does this account for taxes in retirement?
No. Withdrawals from traditional accounts are taxable as income, so the gross figure needed is higher than the spending figure. Roth withdrawals are not taxed. Model your own mix accordingly.