Retirement Calculator

What Does It Mean to Retire?

Retirement is the phase of life when a person decides to step back from regular employment. For many, it marks the beginning of a new chapter focused on rest, hobbies, or personal pursuits, and typically continues for the remainder of their life.

Why People Choose to Retire

Deciding to retire often depends on a combination of personal, health, and financial reasons. Some individuals retire because of health limitations—whether physical conditions, disability, or cognitive decline—that make working difficult or unsafe. Others may retire early due to high workplace stress or a desire for more personal time.

While some gradually reduce work hours through semi-retirement or return to work after retiring briefly, most people in the U.S. choose to fully retire between ages 55 and 70—when they feel financially and emotionally prepared.

A key question many face is whether retirement is even financially viable. Relying solely on Social Security is common but usually not enough. These benefits are intended to replace around 40% of average pre-retirement income, which means most people will need additional savings to maintain their lifestyle after retiring.

How Much Should You Save for Retirement?

The answer depends on several factors: expected expenses, life expectancy, access to retirement benefits like Social Security, and your lifestyle goals.

General Retirement Savings Guidelines

• The 10% Rule: Aim to save 10–15% of your gross income each year. For example, saving $5,000–$7,500 annually on a $50,000 salary could lead to a $1 million retirement fund by age 65.

• The 80% Rule: Plan to replace 70–80% of your pre-retirement income. So if you earned $100,000 per year while working, you may need $70,000–$80,000 per year in retirement to maintain a similar lifestyle.

• The 4% Rule: Estimate your required annual income and divide it by 4% to get your target retirement savings. If you’ll need $100,000 per year, aim for a $2.5 million nest egg ($100,000 ÷ 0.04).

Many experts also suggest saving 15 to 25 times your current annual income to cover retirement comfortably. While these are guidelines, our Retirement Calculator can offer more tailored estimates.

How Inflation Affects Retirement Savings

Inflation gradually reduces the purchasing power of money. A dollar today won’t buy as much in 30 years as it does now. Historically, the U.S. inflation rate has averaged about 2.6% annually—meaning today’s dollar is worth less than half what it was three decades ago.

Although inflation is hard to predict, you can account for it with smart investing. Options like Treasury Inflation-Protected Securities (TIPS), dividend-paying stocks, and commodities such as gold are designed to help protect against inflation. Our calculator factors inflation into its projections to provide more realistic estimates.

Common Sources of Retirement Income

People in the U.S. often rely on a combination of savings, benefits, and investments to fund their retirement. Here’s a breakdown:

1. Social Security

Social Security provides monthly payments to those who paid into the system via payroll taxes. On average, it replaces about 40% of a worker’s earnings. While it’s a safety net, most retirees need additional savings.

Benefits depend on your income history. For example, someone earning $20,000 per year may receive about $800/month, while someone earning $100,000 may receive around $2,000/month. However, higher earners see diminishing returns—making supplemental savings essential. For detailed estimates, visit our [Social Security Calculator].

2. Employer-Sponsored Plans: 401(k), 403(b), and 457 Plans

These are tax-advantaged retirement accounts offered through employers. Many companies match a portion of employee contributions. For instance, a 3% match on a $60,000 salary adds $1,800 in free retirement money each year. Contributions are pre-tax, grow tax-deferred, and are taxed upon withdrawal.

• 403(b): Offered by nonprofits, schools, and some government agencies.

• 457 Plans: Available to state and local government workers.

To maximize benefits, contribute at least enough to receive your employer’s full match. Use our [401(k) Calculator] to explore further.

3. IRAs and Roth IRAs

These individual retirement accounts are popular for their tax advantages:

• Traditional IRA: Contributions are pre-tax; withdrawals are taxed in retirement.

• Roth IRA: Contributions are made with after-tax income; withdrawals in retirement are tax-free.

Both are great for growing wealth long-term. Our [IRA Calculator] and [Roth IRA Calculator] can help determine which is right for you.

4. Pension Plans

Some employers, particularly in the public sector, offer pension plans. These provide monthly payouts or lump sums upon retirement. Although pensions are less common today, they remain valuable for many government workers and long-time corporate employees. Visit our [Pension Calculator] for estimates.

5. Investments and CDs

After maximizing retirement accounts, you can grow savings through investments such as:

• Mutual funds and index funds

• Individual stocks and bonds

• Real estate

• Commodities (e.g., gold)

• Certificates of Deposit (CDs)

These offer varying levels of risk and return. While CDs and bonds provide stability, stocks and real estate may yield higher long-term gains. For guidance, explore our [Investment Calculator].

6. Personal Savings

Savings accounts, money markets, and checking accounts offer liquidity but limited returns. Due to inflation, relying solely on these for retirement isn’t ideal. However, keeping some funds easily accessible for emergencies is still important.

Additional Retirement Income Sources

Home Equity & Reverse Mortgages

Homeowners can tap into their property’s value through reverse mortgages, which provide income in exchange for home equity. Ownership transfers to the lender after the final payment.

Annuities

Annuities offer steady income, usually for life. You can purchase them upfront and receive:

• Immediate annuities: Start paying right away.

• Deferred annuities: Begin payments later, after an accumulation period.

Explore our Annuity Calculator to assess if this option fits your retirement goals.

Passive Income

Rentals, royalties, stock dividends, and business income are examples of passive income streams that can supplement your retirement budget—especially after maxing out other retirement contributions.

Inheritance

In some cases, retirement funds come from inherited wealth. While helpful, inheritances may be taxed depending on your state and the asset type. Use our Estate Tax Calculator to estimate potential tax liabilities.