Are You on Track to Retire? Start With Spending, Not Salary
A salary multiple cannot know what retirement will cost you. A retirement-readiness analysis can ask a more direct question: under stated assumptions, will your saving pattern produce the balance needed to fund your planned spending, after other retirement income, through the planning age?
That is still a scenario, not a forecast. Investment returns, inflation, spending, retirement income, and lifespan are uncertain. But putting them in one calculation shows which assumption is deciding the result and what change would close a modeled gap.
One scenario, both sides of the comparison
Take a representative example, illustrative rather than a real person. At age 40, the person has $150,000 saved and contributes $1,000 a month. The plan is to retire at 67, spend $50,000 a year in today's dollars, receive $20,000 a year from sources outside the modeled portfolio, and fund spending through age 95.
The return assumptions are visible: 5% nominal before retirement, 4% nominal after retirement, and 2.5% inflation. They are inputs chosen to demonstrate the calculation, not predictions.
The two balances answer different questions
The projected balance grows today's $150,000 and the monthly contributions to age 67. The modeled balance needed is the value at retirement of the annual portfolio-funded spending through age 95, after converting the nominal return and inflation assumptions to a real return.
Time changes both sides
Retiring later adds contribution years and shortens the period the portfolio must fund. Retiring earlier does the reverse. With every other input held fixed, moving this example from age 67 to 65 widens the shortfall; moving it to 70 produces a surplus.
Return assumptions can overwhelm the answer
A constant-return calculation makes sensitivity easy to see, but it does not make any return likely. Below, the first number is the nominal annual return before retirement and the second is the nominal annual return after retirement. Inflation stays at 2.5%.
What this result cannot say
- It is not a probability of success. The model follows one constant return before retirement and one after it. It does not generate a distribution of market outcomes.
- It omits the order of returns. The Society of Actuaries calls the interaction between withdrawals and the order—not only the overall level—of returns sequencing risk. A poor early sequence can deplete a retirement account faster than the constant path suggests.
- The planning age is not a life-expectancy forecast. It is the final age through which this scenario funds spending. Living longer than planned creates longevity risk.
- It omits taxes, fees, and account rules. It also holds contributions, spending, and other income to the entered pattern. Real plans change.
The Department of Labor says no retirement-income rule of thumb fits everyone. Treat the result as a structured question: which input deserves verification, and which controllable input would improve the plan?
Run your retirement scenario
The retirement-readiness calculator compares your projected balance with the modeled balance needed and shows the contribution gap. From there:
- Compound interest to isolate the saving phase.
- Targeted savings for a fixed amount and date.
- What to fund first to place retirement contributions among other priorities.
- Funding-priority guide for the broader sequence.
How this is sourced
The retirement-income gap and planning-horizon guidance come from the U.S. Department of Labor. The risk limitations come from the Society of Actuaries Research Institute. The worked example and charts are original calculations from the same deterministic model as the linked calculator; every assumption is stated above.
Sources
Grounded in authoritative primary sources:
This is educational, not personalized financial advice. For your specific situation, talk to a licensed professional.