Retirement savings calculator

How retirement savings calculations work

A retirement savings calculator answers two related questions: (1) what monthly amount do I need to save to retire comfortably, and (2) how long will my savings last once I'm retired? Both rely on the same handful of inputs: your current savings, expected return rate, retirement age, life expectancy, and target retirement spending.

The standard approach uses two formulas. The first projects your savings forward using compound interest. The second models the drawdown phase — how the portfolio shrinks as you withdraw a yearly amount, adjusted for inflation, while remaining invested.

The 4% rule (and its limitations)

The most quoted retirement guideline is the 4% rule: if you withdraw 4% of your portfolio in year one and adjust for inflation each year after, your money should last 30 years based on historical US market returns. So a $1M portfolio supports about $40,000/year in retirement spending.

It's a useful starting point but not a guarantee. The 4% rule was developed using US data; it can be more or less optimistic for other countries. Recent research suggests 3.5% is safer for early retirees expecting a 40+ year retirement, while 4.5–5% is reasonable for traditional 60–65 retirements.

A worked example

Government pensions: the safety net you should still account for

Most readers will receive some form of government pension on top of their personal savings. These reduce the portfolio you need to build:

• NZ Super: ~NZ$25,000/year per person from age 65, regardless of work history.
• Australian Age Pension: means-tested; up to ~AU$30,000/year per couple if eligible.
• UK State Pension: ~£12,000/year if you have 35 qualifying NI years.
• US Social Security: highly variable — average around US$22,000/year, max ~US$45,000/year at full retirement age.
• Canada CPP + OAS: combined ~CA$20,000–25,000/year for many retirees.

Common mistakes

• Forgetting inflation. $60,000/year today is not the same as $60,000/year in 30 years. A 2.5% inflation rate roughly doubles cost of living every 28 years.
• Underestimating healthcare costs. Especially in the US, this can be the largest retirement expense.
• Assuming you'll work less in your 60s. Many retirees do — but plan for the possibility you can't.
• Ignoring sequence-of-returns risk. A market crash in your first retirement years is far more damaging than one a decade in.