You contribute to your employer plan to save for the long-term goal of financial security in retirement. But your contributions affect your paycheck today. This area of the calculator shows the current impact of plan participation, including:
As a general rule, most retirees live on less income than they had during their working years, often because they owe less in taxes and because they no longer need to save for retirement.
An 85% income replacement rate can be a good starting point when making a general estimate of how much of your current income you may need in retirement.
If you plan to travel widely or own a second home, you might want to assume that you could need more in retirement, up to 100% of your current income. Additionally, retirees may wish to factor in higher health care expenses — including Medicare premiums — into their calculations.
Or if you have paid off your mortgage, enjoy good health, and pursue inexpensive hobbies, you might want spend less than 85% of your current income in retirement.
For comparison, here is how much current retirees spent, on average, according to an analysis of U.S. Department of Labor's Bureau of Labor Statistics' Consumer Expenditure Survey of retirees with different income levels.
| Pre-retirement income | Percent needed in retirement |
|---|---|
| $20,000 | 94% |
| $30,000 | 90% |
| $40,000 | 85% |
| $50,000 | 81% |
| $60,000 | 78% |
| $70,000 | 77% |
| $80,000 | 77% |
| $90,000 | 78% |
| $150,000 | 84% |
| $200,000 | 86% |
| $250,000 | 88% |
|
Source: AON Consulting’s 2008 Replacement Ratio Study: A Measurement Tool for Retirement Planning. Assumptions: Family with one wage earner who retires at age 65 with a spouse age 62. | |
For your convenience, we can retrieve an individual benefit estimate based on your current earnings from the Social Security Quick Calculator at Social Security Online(the official website of the U.S. Social Security Administration).
Get your SSA.gov* Social Security benefit estimateper month, in today's dollars
Saving through your employer plan offers a significant tax break.
When you contribute to the plan on a pre-tax basis, you postpone paying taxes on your contributions today. The money you would have spent on taxes gets invested instead. Your contributions and any earnings grow tax-deferred, which means you don’t pay taxes on your savings until you withdraw the money in retirement.
Your plan may also offer Roth after-tax contributions. With Roth contributions your money goes in after taxes have been paid, so you forgo the current tax advantage. But any earnings on your contributions grow tax-free. So long as you are age 59½ or older and have held the account at least five years, you won’t owe taxes on your withdrawals. You can make pre-tax or Roth contributions, or a combination of the two.
Some plans also allow traditional after-tax contributions; taxes on any earnings are postponed until you make a withdrawal. But you may want to consider these contributions only after you have made full use of pre-tax or Roth contributions, given their tax advantages.
The money you save in your plan and your company match earn interest over time. These earnings are reinvested to earn more money. The more you save and the longer your savings have a chance to grow, the more benefit you could get from compounding.
Years at a loss: 14 out of 93 (15.1%)
Less risk
More risk
The performance data shown represent past performance, which is not a guarantee of future results. When determining which index to use and for what period, we selected the index that we deemed to be a fair representation of the characteristics of the referenced market, given the information currently available. For U.S. stock market returns, we use the Standard & Poor’s 90 from 1926 – 3/3/1957, the Standard & Poor’s 500 Index from 3/4/1957 through 1974, the Wilshire 5000 Index from 1975 through April 22, 2005, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. For U.S. bond market returns, we use the Standard & Poor’s High Grade Corporate Index from 1926 to 1968, the Citigroup High Grade Index from 1969 to 1972, the Lehman Brothers U.S. Long Credit AA Index 1973 to 1975 the Barclays Capital U.S. Aggregate Bond Index from 1976 to 2009 and the Barclays U.S. Aggregate Float Adjusted Bond Index thereafter. For U.S. cash reserve returns, we used the Ibbotson 1-Month Treasury Bill Index from 1926 through 1977, and the Citigroup 3-Month Treasury Bill Index thereafter. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest. Index performance is not illustrative of any particular investment because you cannot invest in an index.