How to use the retirement income calculator
The calculator has two tools.
Income vs spending builds a monthly retirement budget in today’s dollars:
- Guaranteed income. Your Social Security benefit for the age you plan to claim, any pension and any annuity payments.
- Portfolio. The balance you will draw on and the yearly withdrawal rate. The calculator turns them into monthly income: balance × rate ÷ 12.
- Part-time work, if you expect to keep earning. Use take-home pay.
- Spending in six categories. Use your current spending as a base and adjust: a paid-off mortgage, no commuting, more travel early on, more healthcare later.
Inflation over retirement takes your spending today, split into healthcare and everything else, and projects both from now until the last year of retirement.
How the numbers are calculated
Monthly gap = Total income − Total spending
Coverage = Total income ÷ Total spendingAll amounts are monthly and in today's dollars. A negative gap is a shortfall.
When there is a shortfall, two figures show what would close it at the same withdrawal rate: the extra portfolio needed, and the withdrawal rate that would balance the budget from the portfolio you have.
General spending in year t = G × (1 + π)t
Healthcare in year t = H × (1 + h)tG and H are yearly general and healthcare spending today, π general inflation, h healthcare inflation and t the number of years from now. Retirement year 1 is t = years until retirement.
A worked example
Income vs spending. Social Security of $2,000, a pension of $600 and part-time work of $500 a month, plus $1,333 a month from a $400,000 portfolio at 4% a year, give total income of $4,433. Spending comes to $4,650.
That leaves a $217 monthly shortfall: income covers 95.3% of spending. Closing it would take about $65,000 more in the portfolio, or a withdrawal rate of 4.7% from the current one.
Inflation over retirement. Today you spend $48,000 a year plus $7,800 on healthcare. Retiring in 10 years with 2.5% general inflation and 5% healthcare inflation, the first year of retirement costs $74,149, and year 30 costs $178,037. Healthcare grows from 17.1% of the budget to 29.4%.
Reading the budget
Coverage tells you how much of your lifestyle is funded. Above 100% you have room for surprises; below it, something has to give. In the example, income covers 95.3% of spending.
The guaranteed share tells you how exposed you are. Guaranteed income covers 55.9% of the example budget. The remaining part depends on the portfolio and on staying able and willing to work. If the part-time income stops, the shortfall grows to $717 a month.
The withdrawal rate is a choice, not a fact. Raising it from 3% to 5% lifts portfolio income from $1,000 to $1,667 a month, and turns the example shortfall into a surplus of $117. It also makes running out more likely. The retirement withdrawal calculator shows how withdrawal rates play out over decades.
Why healthcare inflation matters so much
Healthcare starts as a modest part of most retirement budgets, but if it inflates faster than everything else, it compounds into a much larger one. In today’s dollars, the rest of the example budget stays flat at $48,000, while healthcare grows from $7,800 to $19,964 a year by year 30 of retirement.
| Healthcare inflation | Year 30 spending | Healthcare share then | Total over retirement |
|---|---|---|---|
| 2.5% (same as general) | $146,172 | 14.0% | $3,135,914 |
| 4% | $161,747 | 22.3% | $3,345,112 |
| 5% (example) | $178,037 | 29.4% | $3,541,691 |
| 6% | $201,427 | 37.6% | $3,801,893 |
The difference between the rows comes entirely from the gap between the two inflation rates. Even a percentage point or two, compounded over decades, adds a large amount to lifetime spending. If you are already retired, set the years until retirement to 0: the first-year cost is then today’s $55,800.
Some practical points follow. Medicare in the US generally starts at 65, so anyone retiring earlier needs to budget for private coverage until then, often at a higher cost. Dental, vision, hearing and long-term care are often only partly covered, if at all. And costs tend to rise with age, independent of inflation, which this projection does not model.
What this calculator does not include
- Taxes. Withdrawals from traditional retirement accounts are taxable in the US, and part of Social Security can be. Include the tax you expect in “everything else”, or enter after-tax income.
- Changes in spending with age. Travel often falls later in retirement while care costs rise. The projection keeps each category growing at a constant rate.
- Long-term care, which can be large and is not part of the healthcare line unless you add it.
- Portfolio risk. The withdrawal line assumes the portfolio supports a steady rate. To test whether it does, use the retirement Monte Carlo calculator, and for the full savings picture, the retirement calculator.