Calculate Your Retirement Savings Requirements

By Stock Research Pro • May 12th, 2011

Anyone who is interested in retiring comfortably someday should calculate the retirement savings they will need to have in order to live the lifestyle they desire after they stop working. While it is best to start retirement planning as your career begins, even those who get a late start can take action to set themselves up for a comfortable retirement. The key is in knowing what your retirement goals should be and the options available to you in achieving those goals. It is also helpful to gain an understanding of the implications that taxes and inflation can have on your success.

Investing for Retirement

When you put money into a retirement account, you can choose among a number of options for investing. Most financial advisors will encourage you to create a diversified portfolio in order to enjoy capital appreciation while building in a degree of protection against market uncertainties. Stocks, bonds, mutual funds, and certificates of deposit (CDs) can all play a role in your planning. The right mix of these will depend on your tolerance for risk and your timeframe to retirement.

Types of Retirement Accounts

The details regarding three of the most popular types of retirement accounts, a traditional IRA, a Roth IRA, and a 401(k) are outlined below.

  • Traditional IRA- A traditional IRA (Individual Retirement Account) is a vehicle for retirement savings that provides retirement investors with the opportunity to contribute some of their pre-tax income into investments. While the IRS set limits regarding the amount of money an individual may contribute annually, the money in IRA investments grow on a tax-deferred basis (taxes are paid at the time of withdrawal). Stocks, bonds, and mutual funds are typical IRA investments. Individuals can begin to withdrawing as early as age 59 and ½.
  • Roth IRA- Unlike a traditional IRA, the money contributed to a Roth IRA is after-tax income, but the funds from a Roth IRA are not taxed at the time of withdrawal. And unlike a traditional IRA, Roth IRA investors do not have to wait until they retire to start withdrawing money (although penalties are incurred if the investor makes a withdrawal within five years of the contribution date.
  • 401(k)- A 401(k) provides employees with a pre-tax investment option for retirement savings purposes. While the IRS imposes limits as to the percentage of salary the employee is allowed to contribute, many employers offer matching contributions, making 401(k) investing a particularly attractive option. 401(k) earnings grow on a tax-deferred basis and employees are allowed to begin penalty-free withdrawals at age 59 and ½. Some hardship exemptions can apply for early 401(k) withdrawals.

    To use the Retirement Savings Calculator

    (1) Enter the first year you expect to be retired
    (2) Enter your current annual income
    (3) Enter your inflation rate assumption
    (4) Enter the percentage of your annual income you will need to have available to you in order to live your desired lifestyle in retirement

    The calculator returns the amount of money you will need to have available to you each year and the total for the twenty year period.


    The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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