Editing Retirement (section)

===Calculators===

A useful and straightforward calculation can be done if it is assumed that interest, after expenses, taxes, and inflation is zero. Assume that in real (after-inflation) terms, one's salary never changes over ''w'' years of working life. During ''p'' years of pension, one has a living standard that costs a replacement ratio ''R'' times as much as one's living standard in working life. The working life living standard is one's salary minus the proportion of salary Z that should be saved. Calculations are per unit salary (e.g., assume salary = 1).

Then after ''w'' years work, retirement age accumulated savings = ''wZ''. To pay for pension for ''p'' years, necessary savings at retirement = ''Rp(1-Z)''

Equate these: ''wZ'' = ''Rp''(''1-Z'') and solve to give ''Z'' = ''Rp'' / (''w + Rp''). For example, if ''w'' = 35, ''p'' = 30 and ''R'' = 0.65, a proportion ''Z'' = 35.78% should be saved.

Retirement calculators generally accumulate a proportion of salary up to retirement age. This shows a straightforward case, which nonetheless could be practically useful for optimistic people hoping to work for only as long as they are likely to be retired.

For more complicated situations, there are several online retirement calculators on the Internet. Many retirement calculators project how much an investor needs to save, and for how long, to provide a certain level of retirement expenditures. Some retirement calculators, appropriate for safe investments, assume a constant, unvarying rate of return. Monte Carlo retirement calculators take volatility into account and project the probability that a particular plan of retirement savings, investments, and expenditures will outlast the retiree. Retirement calculators vary in the extent to which they take taxes, social security, pensions, and other sources of retirement income and expenditures into account.

The assumptions keyed into a retirement calculator are critical. One of the most important assumptions is the assumed rate of real (after inflation) investment return. A conservative return estimate could be based on the real yield of [[Inflation-indexed bond]]s offered by some governments, including the United States, Canada, and the United Kingdom. The TIP$TER retirement calculator projects the retirement expenditures that a portfolio of inflation-linked bonds, coupled with other income sources like Social Security, would be able to sustain. Current real yields on United States Treasury Inflation Protected Securities (TIPS) are available at the US Treasury site. Current real yields on Canadian 'Real Return Bonds' are available at the Bank of Canada's site. As of December 2011, US Treasury inflation-linked bonds (TIPS) were yielding about 0.8% real per annum for the 30-year maturity and a noteworthy slightly negative real return for the 7-year maturity.

[[File:Work 40 retire 20.jpg|right|250px]]
Many individuals use "retirement calculators" on the Internet to determine the proportion of their pay they should be saving in a tax advantaged-plan (e.g., IRA or 401-K in the US, RRSP in Canada, personal pension in the UK, superannuation in Australia).
After expenses and any taxes, a reasonable (though arguably pessimistic) long-term assumption for a safe real rate of return is zero. So in [[Real versus nominal value (economics)|real terms]], interest does not help the savings grow. Each year of work must pay its share of a year of retirement. For someone planning to work for 40 years and be retired for 20 years, each year of work pays for itself and for half a year of retirement. Hence, 33.33% of pay must be saved, and 66.67% can be spent when earned. After 40 years of saving 33.33% of pay, we have accumulated assets of 13.33 years of pay, as in the graph. In the graph to the right, the lines are straight, which is appropriate given the assumption of a zero real investment return.

The graph above can be compared with those generated by many retirement calculators. However, most retirement calculators use nominal (not "real" dollars) and therefore require a projection of both the expected inflation rate and the expected nominal rate of return. One way to work around this limitation is to, for example, enter "0% return, 0% inflation" inputs into the calculator. The Bloomberg retirement calculator gives the flexibility to specify, for example, zero inflation and zero investment return and to reproduce the graph above. The MSN retirement calculator in 2011 has as the defaults a realistic 3% per annum inflation rate and optimistic 8% return assumptions; consistency with the December 2011 US nominal bond and inflation-protected bond market rates requires a change to about 3% inflation and 4% investment return before and after retirement.

Ignoring tax, someone wishing to work for a year and then relax for a year on the same living standard needs to save 50% of pay. Similarly, someone wishing to work from age 25 to 55 and be retired for 30 years till 85 needs to save 50% of pay if government and employment pensions are not a factor and if it is considered appropriate to assume a zero real investment return. The problem that the lifespan is not known in advance can be reduced in some countries by the purchase at retirement of an inflation-indexed [[life annuity]].