Retirement / 401(k) Calculator

Most people start with what they can save and hope it is enough. The more reliable method is to start from the income you will need and calculate the capital that produces it.

• Target replacement rate - retirees commonly need 70-85% of pre-retirement income, less if the mortgage is cleared and commuting and saving costs stop.
• The 4% guideline - a portfolio can generally support withdrawing around 4% of its starting value annually, adjusted for inflation, for roughly 30 years. Derived from historical US market and bond data.
• Capital required - divide the annual income you need by the withdrawal rate.

Aiming at 3.5% instead raises the required capital by roughly 14% but materially improves the odds of the money lasting. The withdrawal rate is the single most consequential assumption in the whole calculation.

Note. The 4% rule is a planning heuristic derived from historical averages, not a guarantee. Longer retirements, poor early returns, or higher inflation than the historical record can all exhaust the portfolio earlier.

1. Savings rate dominates everything. Someone saving 20% of income reaches a target roughly twice as fast as someone saving 10% - and the difference compounds across a career.
2. Time in the market. Starting ten years earlier can matter more than contributing substantially more per year.
3. Return assumption. Test it pessimistically. A projection built on 8% that delivers 6% leaves a gap that is very difficult to close late.
4. Fees. One percentage point of annual fees permanently reduces the terminal balance by roughly a quarter over a 30-year accumulation period.
5. Consistency. Missing contributions during market dips is particularly costly, because the missing money would have bought in at low prices.

The average return does not determine whether the money lasts. The sequence does - because withdrawals happen regardless of whether the market is up or down.

• A bad early market forces you to sell assets at depressed prices to fund withdrawals, permanently reducing the shares you hold and therefore the recovery you participate in.
• The same average return in a different order can produce a very different terminal balance.
• This is why the risk is asymmetric - the years immediately after retiring matter far more than the years immediately before.
• Mitigation - hold a cash or short-term bond buffer covering one to two years of withdrawals so that poor years do not require selling equities, and consider a flexible withdrawal rate that is cut when markets fall.

Note. Sequence risk does not apply during accumulation, where falling prices mean your contributions buy more units. It begins the moment withdrawals start.

• State pension - usually a fraction of previous earnings, with the exact figure depending on contributions and qualifying years. Obtain your official estimate rather than assuming.
• Workplace schemes - defined benefit plans pay a predictable income; defined contribution plans depend on the pot you accumulate.
• Personal savings and investments - the part this calculator most directly models.
• Part-time work - materially reduces the draw required and shortens the drawdown period.
• Property - downsizing or equity release can contribute, at the cost of housing flexibility.
• Annuity - converts capital into guaranteed income for life, removing longevity risk at the price of giving up flexibility and typically the residual balance.

A balanced plan usually combines several of these. No single source needs to carry the whole requirement, and mixing guaranteed with flexible income addresses different risks.

1. Ignoring tax. Withdrawals are generally taxable. A gross projection overstates what reaches your pocket - model after-tax income.
2. Assuming constant returns. Markets do not deliver a smooth line; a projection that shows steady growth hides the volatility that causes behavioural mistakes.
3. Forgetting healthcare. Often the largest and least predictable retirement expense, and it inflates faster than general inflation.
4. Not modelling inflation. A nominal figure that looks adequate today may not in twenty years - always run the projection in today's money.
5. Using a fixed end date. Longevity is the risk that the money runs out while you are still alive. Plan to 95 rather than to the average.
6. Stopping contributions at retirement without reviewing allocation. The drawdown phase requires its own risk management.
7. Leaving the target static. A change in income, health, housing or family circumstances changes the requirement.