Retirement Number Calculator

golden egg

Using scientific principles this calculator computes the age at which your pre-retirment contributions should be sufficient to meet your retirement needs. And it explains how the results were derived.

This calculator does not include a questionnaire on risk tolerance (your psychological ability to stomach investment losses). Instead it primarily concerned with computing the appropriate strategy given your risk aversion (preference for uniform consumption).

Several things set this calculator apart:


Sex: Age:
Spouse/partner: Age:

Total life expectancy for self (if known) [?]: Spouse:
Enter your total life expectancy if known, or leave blank to have your life expectancy computed using U.S. Social Security Administration data.

Financial position

This section highlights the balance sheet nature of the approach used. Any asset can essentially be thought of as a series of future cash flows that may be certain or uncertain to some degree. This is true not only of the future cash flows from stocks and bonds, but also such items as future Social Security or pension payments as well as future contributions to retirement savings.

Existing defined benefits:

Starting age Annual amount Inflation indexed Period certain Death benefit
Contingent/survivor payout
Social Security %
Social Security %
Reverse mortgage is for a reverse mortgage providing a fixed annual income (tenure) only. Starting age is that of the owner. Annual amount is in current inflation-adjusted after tax dollars, not future dollars. For income annuities, which become fully taxable after a certain age, enter the expected average after tax amount. Payouts last at least as long as the owner's life. Period certain: the number of years for which payments are guaranteed, even if the owner dies. Contingent: payout reduced on death of either party. Survivor: payout reduced only on death of the owner.

Existing defined contribution savings:

Pre-tax traditional IRAs, 401(k)'s, 403(b)'s, and 457's size: Tax rate: %
After tax Roth IRAs, 401(k)'s, and 403(b)'s size:
Taxable retirement savings size:
Variable annuities are not recommended as an investment vehicle, but during the accumulation phase principal spent purchasing variable annuities should be handled similarly to after tax investments and earnings on variable annuities should be handled similarly to pre-tax investments. During the payout phase variable annuities are best listed, albeit imprecisely, under defined benefits.

Pre-retirement annual contribution amount after tax (irrelevant if retired):
Reduction in contribution amount when only one spouse is working:
Real growth rate: % Annual volatility: %
Contributions and mortgage payments (below) are combined on the assumption that once the mortgage is paid off the additional funds will go towards retirement savings. Contribution amount should consist only of new money contributed to your retirement savings, not the payout from any existing pre-retirement defined benefits. Reduction when only one spouse is working will normally equal the after tax income of the retired spouse, should be expressed prior to applying any growth rate, and can exceed the contribution amount if drawdown is then occuring. A growth rate of 5% represents a doubling every 14 years. Remember to take into account life events such as promotions, or children leaving home in estimating the growth rate.

Other assets and liabilities:

Home appraised value: Real growth rate: % Volatility: %
Mortgage balance: Annual payment: Fixed APR: %
Existing reverse mortgage:
Unused available credit line:
Mortgage balance should include the mortgage balance of any existing reverse mortgage, in which case the annual payment will normally be zero and the APR value used is irrelevant.

Financial goals

Age of spouse at their retirement (blank to retire at the same time as you):
Relative income required when one party deceased: %
Annual desired retirement consumption level:
Retirement consumption should be expressed in current inflation-indexed dollars.

Use liability matching bonds [?]:
Inflation-indexed liability matching bonds are a valuable retirement planning tool. However the short term volatility of long duration liability matching bonds may make them unattractive to investors with a low risk tolerance. If liability matching bonds are not used we naively replace them with regular bonds.

Permit recommendation of income annuities [?]:
Income annuities only make sense if you are in reasonable health and are not planning on leaving an estate.

Permit recommendation of a variable rate reverse mortgage:
Reverse mortgages only make sense if you are not planning on leaving an estate. Many retirees use home equity as a last resort to pay for long term care. If you elect to consider a reverse mortgage you should make sure you either have long term care insurance, or that you still have sufficient assets to pay for your long term care needs.

Reverse mortgage lender's margin: %
Reverse mortgage origination fee and closing costs (excluding MIP):
The values used above are merely intended to get you started. If you are serious about taking out a reverse mortgage you should set these values based on actual quotes.
Expected premium of adjustable rate over 1-year CMT rates: %
Average values for 1989-2015 are -0.2% for adjustable 1-month CMT, 0.0% for 1-year CMT, 0.1% for 1-month LIBOR, and 0.6% for 12-month LIBOR rates.

For a HECM style reverse mortgage you should leave the following parameters alone.

Required age (of younger spouse) when plan to take reverse mortgage:
Age limit for computing tenure duration:
Minimum tenure duration:
Maximum home value eligible for a reverse mortgage:
Delay in years until obtain reverse mortgage (blank to optimize):
Principal limit factor (blank to use 2014 HECM table):
Expected average interest rate (blank to use projected 10-year CMT): %
Initial mortgage insurance premium: % Ongoing premium: %
For a HECM reverse mortgage the index interest rate should be the 10-year constant maturity Treasury or 10-year LIBOR swap rate. This is true even though you will have a monthly or annually adjusting reverse mortgage.

We do not support the ability to leave a specific bequest amount.

Market parameters

You can probably leave the parameters in this section alone.

Estimated equity arithmetic real return: % Volatility: %
U.S. market average values for 1927-2016 are 8.7% and 19.4%. World market average values for 1900-2000 are 7.2% and 17.0%. Going forward many experts predict lower U.S. stock market returns.

Estimated regular bonds premium over 10 year Treasury: %
Estimated regular bonds real volatility: %
Projected long-term inflation rate: %
Estimated premium of an average bond portfolio over 10 year constant maturity Treasuries is 0.6%. Estimated U.S. bond market average real volatility for 1927-2016 was 8.7%. Survey of Professional Forecasters 2017Q1 10 year inflation rate was 2.3%.

Using the default parameters no regular bonds may be recommended. This will occur if regular bonds have a lower expected return than zero long-term volatility inflation indexed liability matching bonds.

Correlation of equity returns with bonds: %
Estimated U.S. market average value for 1927-2016 is 7.3%.

Real volatility of 10 year inflation-indexed zero coupon bonds: %
Correlation with regular bonds: %
Synthetic historical values for 1972-2016 for coupon bonds are 4.8% and 23.9%. Zero coupon bonds will be similar.

Standard error of estimate of equity real return [?]: %
U.S. market average value for 1927-2016 is 2.0%. World market average value for 1900-2000 is 1.7%.
Also report results forming a % confidence interval for the equity return.

Equity and regular bond management fee: %
A value around 0.1% is typical for a low cost provider such as Vanguard.

Real interest rate: %
Yield curve date:
Fixed interest rates can be specified, or if left blank the Treasury yield curves for the specified date will be used. When a fixed real rate is used a fixed nominal rate is formed by combing the fixed real rate, the projected inflation rate, and the regular bonds premium.

Well being

Coefficient of relative risk aversion, γ:
This determines how risk averse you are. A value such as 1 represents a low degree of risk aversion and favors stocks. A value such as 5 represents a high degree of risk aversion and favors bonds. Risk aversion is not the same as risk tolerance. Risk tolerance is about how psychologically comfortable you are with losses to your investment assets. Risk aversion is about how you feel about a change in your annual consumption. Economists are divided on an appropriate value for γ. Many think it is in the range 1 to 4. Others consider a value of 10 or even higher reasonable. Marginal utility of consumption, U'(C) = C.

This is a difficult concept. We present multiple tables to help you get this important parameter right.

As γ increases the desirability of risk taking decreases.
γ 1 2 3 4 5
Indifference to a 50/50 chance of consuming either 100% of C or 200%
of C versus consuming the guaranteed fixed percentage of C shown
141% 133% 126% 121% 117%

The value of an additional dollar declines as you consume more.
γ 1 2 3 4 5
Value of an additional dollar when consuming 110% of C compared
to the value of an additional dollar when consuming 100% of C
91% 83% 75% 68% 62%

The value of an additional dollar declines rapidly for high consumption levels.
γ 1 2 3 4 5
Value of an additional dollar when consuming 200% of C compared
to the value of an additional dollar when consuming 100% of C
50% 25% 13% 6% 3%

Risk tolerance: 10% annual chance of experiencing real investment portfolio losses of % or more.
Risk tolerance is concerned with the ability to psychologically handle losses to your investment portfolio, and not pull out of the market in the event of a downturn. Risk tolerance differs from risk aversion by only looking at investment assets rather than the total portfolio including defined benefits. Setting it to a low or intermediate value provides for peace of mind but will reduce your expected consumption. In an ideal world it might be set as high as possible so that risk aversion, which looks at the total portfolio, can take over in determining the appropriate asset allocation. For the default market parameters a value of 18% or higher effectively imposes no constraints. Setting it to a value of 10% or less is only possible for ages above about 40, or if you also alter the default market parameters to be indicative of shorter-term bonds.

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