AARP Retirement Calculator: Are You Saving Enough?

It depends on several things — your health, your finances, your job satisfaction and more. The AARP Retirement Calculator can help you decide. If you plan on retiring early, however, you’ll need a lot more money than if you retire at a more traditional age, because you’ll be drawing on those savings for a longer time.

Keep these things in mind:
 

• You can’t claim Social Security retirement benefits before age 62, and if you start before full retirement age (67 for people born in 1960 or later), your benefits will be reduced.
• In most cases, you can’t tap tax-deferred retirement accounts such as a traditional IRA or a 401(k) without a 10 percent penalty until the year you turn 59½. You’ll owe taxes on your withdrawals at any age, unless the money comes from a Roth account. 
• Most people do not qualify for Medicare until they turn 65. If you decide to retire before then, be sure to include the cost of private health insurance in your calculations.

One rule of thumb is that your savings at retirement should be at least 10 times your annual income at your retirement age. So, if you’re retiring from a $100,000-a-year job, you need $1 million in savings to maintain your lifestyle without outliving your money. But this is a very rough estimate. The AARP Retirement Calculator helps you refine that estimate. The tool bases its answer on three big variables: How long you plan to save, how long you need your savings to last and what kind of returns you expect to earn on them.

Follow these precepts to help reach your goal: 

Save as much as you can. You can’t control how long you’ll live in retirement or what your returns will be. But you can control how much you save. In the long run, that’s the biggest determinant of how much you will have when you retire. The more you save, the more you’ll have when you retire. The AARP Retirement Calculator will help you find the best amount to save to reach your goal.

The earlier you start, the better. If you start putting $5,000 a year into an IRA at age 30, you’ll have about $669,400 at age 70, assuming you earn 5 percent a year. If you start at age 50, you’ll have $186,860. Although it’s never too late to start saving, it’s a lot easier if you start early. The AARP Retirement Calculator lets you adjust the age when you retire to see how you’ll fare at various ages.

A portfolio with an equal blend of stocks, bonds and CDs typically yields a bit over 6 percent. A riskier portfolio (with more in stocks) might return more, and a more conservative one (with more in CDs) might earn less. But bear in mind that very few people are skilled investors and that some very wealthy investors could be just a bit lucky, too. The AARP Retirement Calculator will let you adjust your rate of return. Just ask yourself how much risk you are comfortable with as you age, and don’t overestimate your skill or your luck.

Obviously, your life span in retirement is something you can’t know, but you can get a general idea. According to federal health statistics, the average U.S. man who reaches age 65 can expect to live to around 82, and the average woman who reaches 65 can expect to live to around 85.

These are averages; many people will live longer and many not as long. But to help ensure you don’t outlive your money, it’s probably best to plan as if you’ll live into your mid-80s, at least — and perhaps well into your 90s if you are in good health and come from a long-living family. 

You can start collecting retirement benefits at 62, but they will be up to 30 percent lower than if you wait until full retirement age, when you qualify for 100 percent of the benefit calculated from your earnings history. Your payment increases by 8 percent each year you delay beyond full retirement age, until you turn 70.​

Social Security benefits are adjusted annually for inflation. That’s another plus to waiting — when you do claim, you get the benefit of those accumulated increases. But you may have compelling reasons to take your benefits early — for example, if you don’t have enough savings to live on, or if you’re in poor health and don’t expect to live long in retirement. You can use the AARP Social Security Calculator (which estimates your benefit at different ages) along with AARP Retirement Calculator to help with your planning.

You’ll owe federal income tax on withdrawals from a tax-deferred savings account such as a traditional 401(k) or IRA. Most states also tax retirement plan distributions. If your federal, state and local taxes are 30 percent, a $1,000 withdrawal will leave you with $700 after taxes.

You may be required to pay taxes on your Social Security benefits if your overall income (including half of your benefit payments for the year) exceeds $25,000 for an individual tax filer or $32,000 for a married couple filing jointly. (Some states tax Social Security income, too.) Income from pensions and annuities is generally taxable as well.