Retirement Calculator Methodology

1. Overview

The Worth101 Retirement Readiness Calculator is built for normal retirement around ages 60–70 — where Social Security, Medicare at 65, and required minimum distributions matter. It is different from a FIRE calculator, which is about retiring early and bridging the years before 59½ and 65. This page documents how the tool decides whether you are on track, every default it assumes, and the limits you should keep in mind. It is educational, not personalized financial, tax, or legal advice.

2. The on-track test: what you'll have vs need

The headline answer compares two numbers, both in today’s dollars. The portfolio you’ll have is your current savings plus future contributions and any employer match, grown to your retirement age at the pre-retirement return, then adjusted to an after-tax (spendable) value. The portfolio you’ll need funds your desired spending after guaranteed income, at your safe withdrawal rate:

spending from portfolio = annual spending − Social Security − pension
portfolio needed = spending from portfolio ÷ safe withdrawal rate
                + Social Security bridge (if you claim after you retire)
                + pre-Medicare healthcare bridge (if retiring before 65)

This is deliberately not a simple “spending × 25” FIRE number: because Social Security and a pension are paid for life, they reduce the portfolio you actually need. If your projected savings meet or beat the target, you are on track; otherwise the tool shows the shortfall and the extra monthly saving that would close it by your retirement age.

One subtlety the “spending ÷ SWR” term hides: it assumes Social Security is flowing for the whole retirement. If you retire before you claim — say, retire at 62 but delay Social Security to 67 or 70 — your portfolio has to cover that benefit itself during the gap years. The tool adds a Social Security bridge: the present value of your estimated benefit from your retirement age until your claiming age, discounted at the (more conservative) real in-retirement return. When you claim at or before you retire, the bridge is zero. A pension needs no bridge — it already starts at your retirement age.

3. Money basis — today's vs future dollars

The retirement tool displays the readiness numbers in today’s dollars. That means the projected portfolio, portfolio needed, shortfall or surplus, income sources, retire-age sensitivity, and chart are all adjusted for inflation so they reflect current purchasing power.

The engine still uses future nominal dollars internally where that is the right comparison: it grows your account balances to the retirement year, inflates spending and income for year-by-year withdrawals, then converts the displayed balances back to today’s dollars. Retirement does not currently expose a future-dollars toggle like the FIRE tool; the intent is to keep the normal retirement readiness answer comparable to your current spending and savings.

4. How long your money lasts

After retirement, the tool runs your plan forward year by year. Each year it grows the portfolio at the (more conservative) in-retirement return, subtracts your inflation-adjusted spending, and adds your Social Security and pension income. It withdraws from taxable accounts first, then Roth, then tax-deferred, applying the tax rates you set. If the portfolio reaches zero before your “plan through” age, the tool reports the age it runs out; otherwise it reports that your money is projected to last through the full plan, with any projected legacy amount.

5. Social Security assumptions

You enter your estimated monthly benefit and the age you plan to claim. The claiming-age sensitivity card is a scenario-level estimate — it uses the standard adjustment factors relative to your full retirement age (FRA, age 67 for anyone born in 1960 or later):

Claim at 62  ≈ 70% of the FRA benefit (permanent reduction)
Claim at 67  = 100% of the FRA benefit (full retirement age)
Claim at 70  ≈ 124% of the FRA benefit (delayed retirement credits ~8%/yr)

These are estimates, not a benefit quote. They are not based on your earnings history or the Social Security PIA bend-point formula — a full earnings-history calculator is planned separately. Always verify your actual benefit with the Social Security Administration.

6. Pension income

An optional monthly pension or annuity is treated as guaranteed, inflation-indexed income that begins at your retirement age. It reduces the spending your portfolio must cover separately from Social Security, which still follows your selected claiming age.

7. Default assumptions

• Inflation: 2.5% — fully adjustable. This is a planning assumption, not a forecast of current CPI.
• Return before retirement: 7% and during retirement: 5% (more conservative) — both adjustable.
• Safe withdrawal rate: 4% — the common planning starting point; adjustable.
• Taxes: a single effective ordinary-income rate (default 22%) on tax-deferred withdrawals and an effective capital-gains rate (default 15%) on taxable gains.
• Retirement age 67, plan through 95 by default.

8. Limitations

Keep these limits in mind when you read the result:

• This is an educational estimate based on the figures you enter — not financial, investment, tax, or legal advice.
• Social Security amounts are your estimates; the claiming-age card uses standard adjustment factors, not your earnings record.
• Taxes are simplified to flat effective rates. State income tax and Medicare IRMAA surcharges are not modeled.
• Required minimum distributions (RMDs) are flagged but not calculated. The beginning age (currently 73, and 75 for later birth years under SECURE 2.0) and the amount depend on your birth year, account type, employment status, and IRS life-expectancy tables.
• Returns are steady annual assumptions. Real markets vary year to year, and a run of poor early returns (sequence-of-returns risk) can shorten how long money lasts.
• Inflation and returns are user-adjustable planning assumptions, not predictions.

8. Sources

Account, benefit, and eligibility rules are checked against official US government sources at review time: