What it works out
A retirement sum can be worked out backwards. Start with what a month is to cost. Raise it by the rise in prices assumed between now and retirement. Find the sum that would pay that amount, still rising, for the chosen number of years. Then find the monthly saving that would build that sum.
The calculator does those steps in that order and shows each. The chart is the whole plan on one line: the sum building up to the day of retirement, and then being spent until, in the last month, nothing is left.
Every step rests on a number nobody knows: how fast prices will rise, how investments will do before and after retirement, and how long retirement will last. Small changes to any of them move the answer a long way. Lowering a growth rate by one point, or adding five years of retirement, shows how far.
What the sum leaves out
- The plan ends with nothing. A retirement that lasts longer than the years entered runs out of money.
- A state pension, an employer’s pension and any other income are left out. Where there is one, the spending to enter is the part it does not cover.
- Tax and charges are left out, on the way in and on the way out.
- One steady rate hides the order of returns. A fall early in retirement, when the sum is at its largest and is being drawn on, does more harm than the same fall later.
- The saving is level. Saving less early and more later gives a different figure.
Questions people ask
- How much money is needed to retire?
- There is no single figure. It depends on what will be spent, how long retirement lasts, how prices rise and how the money grows, and none of those is known in advance. The calculator turns your own assumptions about each into a sum, and shows how the sum moves when an assumption changes.
- Why does inflation matter so much in a retirement sum?
- Because retirement is far away and long. At a steady 3% a year, compounded yearly, prices double in about 23 and a half years, and they go on rising through retirement. Spending is entered in today’s money so that the calculator can raise it.
- Is a retirement calculator financial advice?
- No. It is arithmetic on figures you supply. It knows nothing about your circumstances, your tax position or the pension rules where you live.
Arithmetic on figures you supply, for study. Educational information, not investment advice or a recommendation to trade. It takes no account of your circumstances, and nothing typed into the calculator is sent or stored.