How this retirement calculator works
Retirement planning comes down to one projection: take what you have, add what you will save, grow it at a rate you believe in, and see what it is worth when you stop working. The complication is that a number thirty-five years away is hard to judge, will two million dollars be a lot or a little? This calculator therefore shows every figure twice: the nominal amount you will see on the statement, and the same amount in today's money, deflated by the inflation rate you enter.
At a glance
- Every figure is shown in nominal terms and in today's money.
- Income in retirement is the portfolio multiplied by the withdrawal rate.
- The FIRE number is the desired income divided by the withdrawal rate.
- Real return uses the exact Fisher relation, not return minus inflation.
It then turns the portfolio into an income using a withdrawal rate, compares that against the income you say you want, and reports the age at which your savings first cover it, the financial-independence, or FIRE, age.
The projection
The calculator steps forward one year at a time from your current age to your retirement age. Each year the balance grows by the return, then the year's contribution is added.
B(t) = B(t − 1) × (1 + g) + C(t)
Real balance(t) = B(t) ÷ (1 + i)^t
With a constant contribution this is exactly the future-value formula used by spreadsheets, Excel's FV(7%, 35, −12000, −50000) reproduces the default result to the cent. The calculator uses the loop rather than the formula so that contributions can rise each year and so the table can show every year's growth.
Worked example: the default inputs
Age 30, retiring at 65, with $50,000 saved, contributing $12,000 a year, earning 7%, inflation 3%.
Year 1: 50,000 × 1.07 + 12,000 = $65,500. Year 2: 65,500 × 1.07 + 12,000 = $82,085. And so on for 35 years.
At 65 the portfolio is $2,192,672. Of that, $50,000 is the starting balance, $420,000 is contributions and $1,722,672 is growth, nearly four-fifths of the total.
Divide by 1.0335 = 2.814 and the real value is $779,239 in today's money. That is the number to judge.
| Annual contribution | Balance at 65 (nominal) | Balance at 65 (today's money) |
|---|---|---|
| $6,000 | $1,363,250 | $484,477 |
| $12,000 | $2,192,672 | $779,239 |
| $18,000 | $3,022,093 | $1,074,002 |
| $24,000 | $3,851,514 | $1,368,764 |
All rows start from $50,000 at age 30 with a 7% return and 3% inflation.
From a portfolio to an income
A retirement portfolio has to last, so you cannot spend it all at once. The usual planning approach is to withdraw a fixed percentage in the first year and raise the dollar amount with inflation thereafter. Four percent is the classic figure from historical US studies: in nearly every 30-year period since the 1920s a 4% initial withdrawal from a balanced portfolio would have lasted.
Income = Portfolio × w
FIRE number = Desired income ÷ w
Worked example: income and FIRE number
At 4%, the default portfolio supports $87,707 a year in retirement-year dollars, or $31,170 in today's money.
If you want $60,000 a year in today's money, you need 60,000 ÷ 0.04 = $1,500,000 in today's money. The default plan reaches $779,239 by 65, about half, so the calculator keeps projecting with the same contributions and reports the age at which the real balance finally crosses $1.5 million.
To retire at 65 on $60,000 instead, you could raise contributions to about $23,000 a year, work to 72, or plan on a 3% real return being enough for $31,000.
Real versus nominal returns
The return you enter is nominal, the percentage your statements will show. Inflation eats part of it. The honest real return is not simply return minus inflation:
Real return = (1 + g) ÷ (1 + i) − 1
For 7% and 3% that is 3.88%, not 4%. Over 35 years the difference between compounding at 3.88% and 4% is about 4% of the final real balance, small, but the calculator uses the exact form so its real figures are consistent with the nominal ones.
Reading the chart and table
The chart plots two lines. The nominal balance climbs steeply; the today's-money balance climbs more gently, and the gap between them is inflation. If you set a desired income, a dashed line marks the FIRE number in today's money, the point where the lower line crosses it is your independence age.
The table lists each year: your age, that year's contribution, the growth the portfolio earned, the nominal balance and its real value. Notice how growth overtakes the contribution, in the default example it happens around age 45, after which the portfolio adds more each year than you do.
What this calculator does not include
- Tax. Contributions may be pre- or post-tax and withdrawals may be taxed. The projection is gross; a rough adjustment is to reduce the income by your expected retirement tax rate.
- State pensions and Social Security. They reduce the income your portfolio has to provide. Subtract them from the income you enter.
- Employer matching. Add it to your contribution, it is money going into the account.
- Fees. A fund charging 0.5% a year turns a 7% return into 6.5%. Enter the net figure.
- Sequence of returns. Markets do not return 7% every year. A bad run just before retirement hurts far more than the same run twenty years earlier. Treat the result as a central estimate and test lower returns.
- Contributions after retirement. The FIRE-age search assumes you keep contributing at the same rate past your planned retirement age; if you would stop, the real independence age is later.
Using the result
Look at the today's-money figures first: the real balance and the real income. If they fall short of what you want, the calculator makes the trade-offs visible, a later retirement age, a higher contribution, a rising contribution as your salary grows, or a lower income target. Small, early changes move the result far more than large, late ones; raising the contribution by $100 a month at 30 adds roughly $180,000 nominal by 65 in the default scenario.