- 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.
- 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.
- Federal tax rate
- Your marginal federal tax rate.
- State tax rate
- Your marginal state tax rate.
|
