I. What is the purpose of this tool?
This tool is for educational purposes and is designed to help you compare your estimated future income to your estimated future income needs in retirement. Our aim is to help you understand how your retirement savings strategies will impact your future income in retirement. Any outcome or result ultimately shown is general and hypothetical and is not an indication, projection or guarantee of the performance or return of any investment, financial product, strategy, plan, account, or approach. If the assumptions made turn out to be incorrect or the information you provide is incorrect, projections you received based on that incorrect information will likely alter your income.
The tool does not assess your risk profile and the results are not investment advice, nor is the tool intended to make any direct or indirect recommendation of any insurance, investment, financial product or investment option.
II. How does this tool work?
Determining retirement income goal
First, your retirement income goal is initially set to equal 80% of your current annual pre-tax salary, adjusted for inflation, but you are free to change this percentage. For this reason, you are required to provide your current age, salary, savings and contribution amounts in the first steps of the tool. The tool cannot be used if you have already retired. The tool does not use 100% of your annual pre-tax salary because your expenses generally change in retirement. For example, while you are employed, you are typically paying Social Security and Medicare tax as well as saving a portion of your income for retirement savings. In addition, you could also have potentially lower living expenses, however, health care expenses may increase over time. The retirement income goal represents an estimate to maintain your current standard of living. Since every person’s financial needs are unique, this estimate can be adjusted as you see fit. Most retirees target 70-85% of their pre-retirement salary. Lowering the target percentage reduces the amount of retirement income.
Determining estimated retirement income
Once you have determined your retirement income goal (based on age and current pre-tax annual salary), we then calculate your estimated retirement income based on assumptions and the inputs that you have provided. Please note that taxes are NOT taken into account when estimating your retirement income. Your actual estimated income will be lower due to taxes, based on your specific circumstances.
Our calculation of your estimated income consists of the following inputs:
- Current age
- Current salary
- Current retirement assets (See below)
- Current contribution amounts and frequency (See below)
- Retirement age (See below)
- Expected rate of return (See below)
- Additional income, including pensions and Social Security
Current retirement assets: We understand that you may have retirement savings account balances from current and prior employers or other sources. To help provide you with a more accurate estimate of your future retirement income, we enable you to include this information in your retirement income calculation.
Current contribution amounts and frequency: You must confirm your current contribution amounts and frequency to ensure your calculation is as accurate as.
Retirement age: We have assumed a retirement age of 67 as a default based on the "full retirement age" as defined by the Social Security Administration. ( https://www.ssa.gov/planners/retire/retirechart.html ) If you are age 67 and above and still working, we assume that you will retire one year from now as a default. Everyone’s financial needs are unique and your retirement age can be adjusted on the evaluation output page as you see fit.
Expected rate of return: As a default, the tool will display an output based on an assumed hypothetical rate of return of 6%. However, you can adjust the rate of return higher or lower based on your investment risk tolerance. Our aim is to help you identify how much you need to contribute to help you reach your retirement income goals. Please note that any outcome or result ultimately shown in our Retirement Income Gap Calculator tool that factors in your current rate of return on savings is general and hypothetical and is not an indication, projection or guarantee of the performance or return of any investment, financial product, strategy, plan, account, or approach.
Constructing a portfolio with the proper asset allocation to fit your risk profile and time horizon is one of the most important decisions an investor can make to give themselves the best opportunity to reach their investment goals. However, a relationship between risk and return exists and investors need to recognize this trade-off – typically, the potential for higher returns can be associated with taking on higher risk.
Additional income (pension and Social Security): In addition, for those of you who have pensions or other forms of retirement income, we encourage you to include this information as well to refine your calculation. For Social Security benefits, the most accurate amount is based on your personal earnings history available at https://www.ssa.gov/myaccount/. Note that Social Security benefits vary by claiming age; your retirement age may or may not be the same age that you claim Social Security benefits. Pensions and outside retirement income sources can have complicated schedules for being earned and distributed; the details of which are not available to Equitable Financial. To make general estimates for how pensions and outside income could potentially affect your retirement, this calculator makes the simplifying assumption that the pension and other retirement income values that you enter yield the same amount of income every year.
Total years in retirement: Lastly, the total years in retirement is estimated based on your current age, retirement age and the IRS Unisex Single Life Expectancy Table. This input (retirement age) plays a critical role in determining your estimated retirement income and will impact your retirement income gap (or surplus) because you may need retirement income for more (or fewer) years than our initial assumptions. Note that the average lifespan at your current age is used to model the end of your retirement period. Your actual lifespan and retirement period may be shorter or longer.
Gap dollars: Any gap dollar amount presented in this tool is the estimated gap in your replacement income for your first year of retirement. It is intended to provide guidance on how much retirement income you could expect in your first year of retirement. In subsequent years, the value of the gap dollar amount would increase by an estimated rate of inflation.
