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Retirement Calculators

There are a lot of great free retirement calculators on the Web. Here are a few of my favorites:


Retirement FAQs

Q. I haven’t got time to perform detailed calculations. Can you give me some quick rules of thumb that would tell me how much of my income I should save for retirement?

A. It depends on how soon you start. If you’ve got no other assets and you aren’t covered by a company pension plan, you can achieve a reasonably comfortable retirement by saving 5% of your income from age 25, 8% from 35, 13% from 45 and 30% from 55. These figures assume you’ll stick with the program to age 65.


Q. What are the best investment vehicles for people who want to accumulate a retirement nest egg?

A. Begin by exhausting all the tax-deductible options open to you: IRAs, Keoghs, corporate 401(k) plans and so on. Then investigate annuities and master limited partnerships, which let you postpone tax on your investment earnings for as long as possible.

Gold, silver and real estate can also deliver tax-deferred profits, although you must take great care to buy at prices low enough to assure a decent return. I generally don’t recommend them to most investors. After you’ve exploited all the tax-free and tax-deferred avenues, you can funnel additional cash into conventional stocks, bonds and mutual funds.


Q. How does life insurance fit in with my retirement savings plan?

A. So called “universal” life is the best type of insurance policy for investment purposes. With a universal life policy, a relatively small fraction of your premium goes for insurance. Most is set aside to earn tax-deferred interest (or divi¬dends and capital gains, in the case of a variable life policy tied to the performance of the stock market).

Typically, single-premium universal plans require a $5,000 or $10,000 deposit. However, there are definite tax benefits if you sign up for a plan that spreads out your premiums over seven years or more. Under current law, any loans you take out against the cash value of a "seven-pay" policy are tax-free. So a universal life policy can serve as a tax-free pension plan to supplement your IRAs, Keoghs, company 401(k), etc.


Q. Is it wise to start drawing Social Security at age 62, rather than 65?

A. You’ll take a 20% cut in benefits if you do. But if you’re not sure about your health, the age 62 option is worth considering. A person who lives to age 85 (the normal life expectancy for a 65-year-old) will collect exactly the same amount of money under either arrangement, assuming a 4% inflation rate over your remaining lifetime.

If you live to only 75, however, you’ll collect 11% more if you start taking Social Security at 62. If you die at 70, the earlier option will boost your lifetime benefits 36%.


Q. I’m on the verge of retirement age, and I waited too long to build up my investments. All I’ve got, basically, is Social Security and my home. What can I do to stay out of the poorhouse?

A. First, if you live in a section of the country where real estate prices are (still) high, look into the possibility of moving to a less expensive area. The equity you’ve built up in your home may partly make up for your lack of savings. Certain states known as retirement havens—Florida, Texas and Arizona, for instance—boast exceptionally cheap residential properties. Remember, too, that married taxpayers can exclude up to $500,000 in gains from selling a home from capital gains taxes (singles can exclude $250,000).

Besides selling your home, don’t rule out the possibility of working part-time after you "retire." In addition to balancing the budget, you may find that part-time work helps you stay mentally alert and gives you a welcome opportunity to meet people.


Q. I just received a lump-sum distribution from my employer’s profit-sharing plan. Should I roll it over into an IRA or pay taxes now?

A. If you’re still relatively young (55 years or younger), the rollover is almost certainly the better choice. With the IRA, you can keep deferring taxes until age 70½. After age 55, it’s hard to make valid generalizations. If you pay taxes on the lump sum now, you can take advantage of special five-year or 10-year averaging. But the money you pay in taxes is lost forever. Go over your numbers with a capable accountant or financial planner.


Q. I have all my retirement funds (less than 100K) in an IRA and would like to convert to a Roth IRA. Is this a good idea and, if so, should I do it all at once?

A. If you qualify for conversion and you’ve got at least 10 years left before retirement, it most likely makes sense for you to switch to a Roth IRA. With a Roth IRA, you don’t get any tax deduction for the money you put in, but the money you tax out during retirement is free of federal income tax. That’s a powerful incentive.


Do you qualify? Only if you earn less than $95,000 (if you're a single filer), or $150,000 if you file jointly with your spouse. Folks who are close to the line should check with a tax advisor to make sure you’re including all the items the government counts as income.


Assuming you qualify, I suggest converting the whole shebang at once. Remember, though, that you’ll owe ordinary income taxes on the old IRA balance (minus any nondeductible contributions you made) when you convert. Don’t convert if you would have to dip into the IRA to pay the taxes. That wrecks the strategy.


1. Start Early, Take It to the Max

The most important piece of advice I can share with you about retirement accounts is to begin contributing as soon as possible. Time, not genius, is the great wealth-builder.


If starting early isn’t an option for you anymore, the best way to make up for lost time is to contribute more.


It just seems liks common sense. Yet millions of Americans don't take full advantage of the smartest retirement strategy (and most obvious tax dodge) out there. The following are the 2008 contribution limits for various types of tax-sheltered retirement accounts:


  • IRAs: $5,000
  • SIMPLE plans: $10,500
  • 401(k), 403(b), 457 and SARSEP: $15,500
  • Keogh Plans(self-employed): $44,000

Continue reading...

2. Investing Your Retirement Money

Profitable Investing subscribers often ask me, “What kind of investments should I own inside my retirement accounts?” The answer depends to a large extent on your stage in life. It’s worth bearing in mind, though, that retirement accounts are tax-sheltered. You want to take full advantage of that feature.


If you are in your 20s and 30s, I suggest using your retirement accounts to hold investments that tend to generate a lot of short-term capital gains. (Short-term gains, where you buy and then sell in 12 months or less, are taxed at the same high rates as wages and salaries.) Mutual funds of the “aggressive growth” variety fit in this category.


In addition, if you plan to trade stocks or mutual funds frequently, a retirement account can save you a pretty penny in taxes. Most brokerage firms, including discounters like Schwab and TD Waterhouse, welcome self-directed retirement accounts.


As you move into your 40s and 50s…continue reading...



3. Five Years to Retirement: A Fork in the Road

Once you get within about five years of your projected retirement date, you’ll need to make a basic decision. Have you got enough to live on in retirement without immediately tapping your tax-sheltered accounts? In other words, will your taxable investments, your pension (if any) and Social Security be enough, together, to pay your bills?


If you’re lucky enough to say yes to this question, I encourage you to allocate your retirement accounts along a growth-and-income track—about 70% stocks and 30% fixed income. (Our main Profitable Investing portfolio is laid out for this purpose, with the goal of keeping your money growing at close to double-digit rates far into the future.)


On the other hand, if you’re nearing retirement and you know you’ll need the money in your tax-sheltered accounts soon, continue reading...


4. The Incredible Dividend Machine

This one-of-a-kind portfolio is designed to let you earn one or more dividend checks every month of the year.


To receive a check every month, all you need to do is choose at least one stock from each of the dividend cycles in the section below. Companies typically pay their dividends in the same month of each calendar quarter (first, second or third). For each stock in the table, I’ve provided the ticker symbol and current yield.



January–April–July–October Cycle

Comerica (NYSE: CMA),7.7%

Energy Transfer Partners (NYSE: ETP),9.3%

Glaxo SmithKline (NYSE: GSK),5.9%

Redwood Trust (NYSE: RWT),8.8%

Regions Financial (NYSE: RF),7.7%

US Bancorp (NYSE: USB),5.2%

Xcel Energy(NYSE: XEL),4.5%

See the complete list here.



5. Mutual Funds You Can Retire On

I'd like to take some time now to address the mutual fund investors among us who may be near or in retirement. Do you own the appropriate funds?


Some need to earn more income from their investments than others do. Ultimately, these issues are more important than whether you own funds from Fidelity, Vanguard or some other family.


Since one size doesn’t fit all, I suggest that you begin with our basic model portfolio allocation (70% stocks, 30% fixed income) and make the necessary tweaks to fit your own circumstances. As a broad guideline, I recommend that you:

  • Add 1% in equities for every year you’re under age 57,
  • Add 1% in equities for every $200,000 in your portfolio value above $1 million; and
  • Subtract 1% from your stocks for every year over age 70, then an additional 2% for every year over 80.

And which funds should you buy right now?

Our Fund Supermarket Portfolio, which I update every other month in our Profitable Investing newsletter supplement, is a good place to start.

It’s composed of funds you can buy through leading discount brokers, usually without paying a transaction fee.

Click here to see how our current portfolio allocations break down.

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