Retirement Calculators 101
Updated November 1, 2019 . AmFam Team
Retirement savings calculators are digital tools meant to help you estimate the future value of your current retirement savings, and give you a good idea of how much more you need to save each month to reach your retirement goals. Some tools will have you fill in basic numbers to give you a snapshot of what your plan could look like in just seconds, others are more interactive, allowing you to input more detailed information to come up with multiple savings scenarios. Which one you use depends on your personal preference — and we’re here to help you figure that out!
How Much Money Should You Have When You Retire?
Now on to the natural next question: ‘how do I know how much money I’ll need for retirement?’ The answer can vary drastically based on your income, cost of living and spending habits. But, in short, it depends on how you want to live out those years of your life. While there’s no magic number detailing exactly what you should save, a retirement savings calculator can take a wide variety of factors into account, helping you determine your savings goals.
How Do Retirement Calculators Work?
No two retirement savings calculators are created equal. Each one takes different variables into account to best estimate how much you should save monthly to be on-track for your goal retirement age. But most retirement calculators will ask for your age, income, savings balance and how much you’re currently saving each month. From there, they’ll take into account future factors like inflation, salary increase and rate of return on investments to come up with a recommended nest egg and monthly savings amount.
Before you get started using a retirement savings calculator, you may want to study up on some of these commonly-used terms.
Current savings. This is simply the amount you’ve currently got saved for retirement. Some people may have this money tucked away in a 401(k), others could have a separate savings account or an IRA.
IRAs. An IRA (or an individual retirement account) is an account with a financial institution that allows you to save for retirement with tax-free growth. There are three main types.
Market value of home. The market value is the estimated amount home buyers today would be willing to pay for your house. You can determine this by using estimators by companies like Zillow, but you’ll get the most accurate estimate by hiring a local home appraisal service.
Nest egg. A sum of money saved up for the future.
Pre-tax (or gross) income. Also called pre-tax dollars, this is your gross income before income taxes are withheld — contributions to your 401(k) or flexible spending account comes out of your pre-tax income. If you’re a salaried employee, you can typically find this information in your employee portfolio. If you earn an hourly wage, simply multiply that by the hours you work each week and multiply the total by 52 (but be sure to factor in any weeks you’ll take unpaid vacation, holidays or sick time).
Retirement pension. A pension is a retirement plan that requires an employer to make contributions to a fund set aside for the employee’s future benefit. Not all employers provide these types of plans so, to know if you’ve got one, take a look at your benefits resource or reach out to your HR team.
Social Security income. Social Security is essentially a trust fund administered by the government to retirees, disabled people and/or families of retired, disabled or deceased workers. It’s primarily funded by FICA payroll taxes that both you and your employer pay. You pay these taxes throughout your career so that you may one day be eligible to receive the benefits of this program.
401(k). A 401(k) is a company-sponsored retirement account that you, as an employee, are allowed to contribute to with your pre-tax income. Many employers also make matching contributions up to a certain percent, and you may also earn interest on your balance. Check out your employers benefits resource to learn about your options.
5 Best Retirement Calculators
Now that you’ve got a little background about how retirement savings calculators work, it’s time to choose the right one for you. The best tools should make crunching the numbers easy, and, for you visual learners, it may be best to use one that has a visual representation of how your savings will grow over time. Regardless of how you prefer to intake information, we’ve got a recommendation that’s sure to suit you. Check out our list of the 5 best retirement calculators.
1. Nerd Wallet Retirement Calculator
Nerd Wallet’s savvy tool takes age, pre-tax income and current savings into account to help you understand how much you will need to save in order to retire at 67. Using the information you enter, it graphically displays how much you’ll need for retirement, how much you’ll have if you continue on with your currently monthly savings and even gives you a retirement savings score. Not sure if 67 is the right retirement age for you? Or think you’ll need more monthly spending funds than their average estimate? You can easily adjust those fields and see the affect it has on your savings goal and your score.
2. Kiplinger Retirement Savings Calculator
The second tool on our list takes a few more factors into account, but it’s not overly complicated. The Kiplinger Retirement Savings Calculator asks questions like “how much income will you need in retirement?” “How much income will you receive from Social Security and Pensions?” and “how much will you draw from home equity?” and it gives you prompts to help you find the answers to those questions — ultimately providing a more comprehensive estimate of what your savings goals truly should be.
3. Financial Mentor’s Ultimate Retirement Calculator
What sets the Ultimate Retirement Calculator apart is that it allows you to account for inheritances you expect to receive before retirement and/or plan to leave behind for your family after your death. This calculator may be especially useful if you have children or wish to plan for a family in the future. It also asks for all the standard information, and allows you to adjust your allocations as you see fit. The easy-to-use table format is a major plus, too.
4. Fidelity Retirement Score Tool
Fidelity’s online retirement savings calculator gives you a snapshot of your retirement finances quickly. You answer six simple questions and are then served a retirement score that’s based on a “needs attention” to “on target” scale. From there, it prompts you to take advantage of their planning and guidance center to build a more concrete retirement plan that’ll set you up for success. It’s a great tool for those just starting to think about retirement planning.
5. Personal Capital’s Retirement Calculator
Finally, Personal Capital’s Retirement Calculator uses Monte Carlo analysis to run thousands of hypothetical return scenarios based on your linked investment accounts — no data entry required. From there, you’ll be taken to a dashboard that displays how your unique situation may play out. So, for those that are more advanced in their investment portfolio and want to dig in to a more complex savings calculator, this is the tool for you.
Whether saving for retirement is a new concept to you, or you’ve been searching for the right tool to help you plan for some time, you’re in the right place! Take a look at our suggested retirement calculators and start building a savings plan today.
Want to keep planning for the long-term? Learn about all the benefits of life insurance and discover your options by connecting with your American Family Insurance agent (Opens in a new tab). They can help build the right life insurance policy for your needs and help you protect what matters most.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
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You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
