How to use a retirement calculator

Their estimates are rough, but here are some guidelines.

Last updated: July 2015

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How much income will you need in retirement? Are you on track? A retirement calculator, used correctly, could help you get a rough idea. Two we like are AARP’s and T. Rowe Price’s retirement calculators because they can accommodate couples, not just individuals. With some retirement calculators, you may have to override built-in assumptions. Here are guidelines:

• Inflation. Input 3 or 3.5 percent. Pessimistic? Use 4 or 5 percent.

• Investment returns. Past performance is not predictive, and your allocations will shift over time. Historical, average annual returns of 9.6 percent for stocks and 5 percent for bonds mean that a mix of 60 percent stocks and 40 percent bonds would return 7.8 percent. But to play it safe, we suggest estimating lower: for a 60/40 mix, 5 or 6 percent.

• Retirement income. You won’t commute, fund a 401(k), or owe FICA taxes, but you’re likely to spend on leisure early in retirement. Later, you’ll spend more on health care. So where the retirement calculator asks for retirement income, go with 85 percent of expected final annual income.

• Social Security benefits. Get a free estimate from the Social Security Administration. For claiming strategies that may yield more, use Financial Engines’ free Social Security planner (scroll midway down the home page); or pay a service such as Social Security Choices or Maximize My Social Security, $40 each.

• Rate of asset withdrawal. Theories vary, but 4 percent annually is a good starting point.

Consumer Reports' Retirement Planning Guide offers unbiased, expert advice on making the most of your next life chapter.

Editor's Note:

This article also appeared in the August issue of Consumer Reports magazine.

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