Definitions

Current age: Your current age.
Age of retirement: Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your retirement savings. So if you retire at age 65, your last contribution happened when you were actually age 64. This calculator also assumes that you make your entire contribution at the end of each year.
Household income: Your total household income. If you are married, this should include your spouse's income.
Current retirement savings: Total amount that you currently have saved toward your retirement. Include all sources of retirement savings such as 401(k)s, IRAs and Annuities.
Rate of return before retirement: This is the annual rate of return you expect from your investments after taxes. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2007, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.4% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect additional sales charges and fees that funds may charge.
Rate of return during retirement: This is the annual rate of return you expect from your investments during retirement, after taxes. It is often lower than the return earned before retirement due to more conservative investment choices to help ensure a steady flow of income. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2007, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.4% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect additional sales charges and fees that funds may charge.
Years of retirement income: Total number of years you expect to use your retirement income.
Percent of income at retirement: The percent of your working year's household income you think you will need to have in retirement. This amount is based on your income earned during the last year you will work. You can change this amount to be as low as 80% and as high as 120%.
Expected salary increase: Annual percent increase you expect in your household income.
Expected rate of inflation: What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2007. The CPI for 2.4%, as reported by the Minneapolis Federal Reserve.
If you are married checkbox: Check this box if you are married. Married couples have a higher maximum Social Security benefit than single wage earners.
To include Social Security checkbox: Check this box if you wish to include Social Security benefits in your retirement planning. Social Security is based on a sliding scale depending on your income, how long you work and at what age you retire. Social Security benefits can automatically increase each year based on increases in the Consumer Price Index. Including a spouse increases your Social Security benefits by 1.5 times your individual estimated benefit. Please note that this calculator assumes that you have only one working spouse. Benefits could be different if your spouse worked and earned a benefit higher than one half of your benefit. If you are a married couple, and both spouses work, you may need to run the calculation twice - once for each spouse and his or her respective income. This calculator provides only an estimate of your benefits.
The calculations use the 2008 FICA income limit of $102,000 with an annual maximum Social Security benefit of $26,220 per year for a single person and 1.5 times this amount for a married couple. To receive the maximum benefit would require earning the maximum FICA salary for nearly your entire career. You would also need to begin receiving benefits at your full retirement age of 66 or 67 (depending on your birth date). Your actual benefit may be lower or higher depending on your work history and the complete compensation rules used by Social Security.