- Definitions
Current retirement savings
- This is your current retirement savings. You
should include any savings or investments that are specifically for
your retirement. Be careful not to include amounts ear marked for
other purposes, such as your children's education.
- Monthly contributions
- The amount you will contribute each month to
your retirement savings. This calculator assumes that you make your
contribution at the beginning of each month. We also assume that this
amount remains constant until you retire.
- Years before you retire
- The number of years you have to save before
your retirement. If you are planning on retiring immediately, you
should enter a zero.
- Number of years in retirement
- The number of years you expect to spend in
retirement. If this retirement savings plan is intended to support you
and your spouse, make sure this is long enough years to account for
your spouses potentially longer lifespan.
- Annual retirement expenses
- Your after tax retirement expenses. Since this
calculator assumes that you will be paying income taxes on interest as
it is earned, your expenses should be entered on an after tax basis.
Your retirement expenses are increased each year by your expected
inflation rate if the "Increase expenses with inflation" box
is checked.
- Inflation rate
- What you expect for the average long-term
inflation rate. A common measure of inflation in the U.S. is the
Consumer Price Index (CPI), which has a long-term average of 3.1%
annually, from 1925 through 2004. Your total expenses are increased by
this rate for each year you require income. The income you would
receive from your life insurance policy is used to cover any
shortfalls between your expected income from all sources and your
expenses.
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- Investment rate of return
- Rate of return on investments. This is the
return that you would make if you were to invest your down payment or
security deposit instead of using it in your auto purchase or lease.
The actual rate of return is largely
dependant on the type of investments you select. From January 1970 to
December 2004, the average compounded rate of return for the S&P
500, including reinvestment of dividends, was approximately 11.5% per
year. During this period, the highest 12-month return was 64%, and the
lowest was -39%. Savings accounts at a bank pay as little as 1% or
less. It is important to remember that future rates of return can't be
predicted with certainty and that investments that pay higher rates of
return are subject to higher risk and volatility. The actual rate of
return on investments can vary widely over time, especially for
long-term investments. This includes the potential loss of principal
on your investment.
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- Federal tax rate
- Your marginal federal tax rate.
- State tax rate
- Your marginal state tax rate.
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