How to Make a Retirement Income Projection

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One of the hardest questions for anyone planning for retirement is to translate what their savings plans mean for their ability to replace income in retirement. In a previous post, we dubbed it the $64,000 question of retirement planning. You have money in your 401(k), IRAs, and taxable accounts. But what does all that mean in terms of the retirement income that you can expect it to deliver when you retire? Are you contributing enough for the retirement you want? Will you have enough by your desired retirement age? Or when will you accumulate enough to sustain your needs in retirement? 

The answer to all these questions depends on your ability to convert an estimated savings amount into income at some point in the future. That is not a trivial commutation and, understandably, most people don’t know how to do that. In our post How Far can $1 Million Go In Retirement? we described the uncertainty around the questions and a few considerations to help people estimate the power of their savings. In this post, we show how you can use our handy retirement income calculator to compute estimates under different scenarios about savings, retirement dates, etc. The calculator is powered by Dimensional Fund Advisors. (Full disclosure, a company where I used to work and where I contributed to the design of a number of retirement solutions, including this calculator).

One great thing about the calculator is the simplicity of the inputs required to get a basic estimate of your future retirement income as well as the uncertainty around that projection. Below is a video to help you use the calculator and make a simple projection.

Make a retirement income projection

All you have to do is to enter some basic information about how much you are saving, how much you have saved, your age, and the age you plan to retire at. Then hit calculate. You can add Social Security, other sources of income, like a pension, and see the effects of all these factors on your retirement outcomes. It’s OK if you don’t know your Social Security benefit because the calculator can estimate it for you. After you entered this information and hit calculate, you can use the tool to refine your retirement plan: how much to save, when to retire, how much to spend, all in a simple tool. Watch the video and give it a shot! You can access the calculator here or from our main menu.

We have often highlighted the importance of putting your savings into the right perspective, your goals. Instead of focusing on changes to market values over time, reframe those changes in terms that matter, the amount of income you can generate in retirement. This will reduce emotional reactions to short term uncertainty when your goal is long-term. In addition, by repeating the projection and focusing on your goal over time, the adjustments you need to make to achieve your goal are likely to be small.

A few caveats are in order. There are a number of assumptions in any calculator, so it’s important to take any of these results with a grain of salt and discuss them with an expert before making any changes to your plan. There is no consideration about taxes, so you should think of the income projection as taxable income. The spending power of that income depends on your tax situation, so it is important to incorporate any of these projections within a tax-efficient strategy.

Once you are done using the calculator, you can hit the download button and get a pdf printout of your projection and analysis. This is a great document to review with your trusted advisor. So get started today, make a retirement income projection!

Until Next Time!

Massi De Santis is an Austin, TX fee-only financial planner and founder of DESMO Wealth Advisors, LLC.  DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow, and protect their resources throughout their lives.  As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.