# How to calculate money needed for a retirement based on an hypothetical death date & expenses?

I would like to know what formula or tool I need to use to calculate the capital needed for a hypothetical retirement that will start at date X and end at date Y.

Here is an example:

• Variable1 = retirement start date: Official retirement is 65 year old.
• Variable2 = retirement end date: Let's say 90 year old.
• Variable3 = monthly budget: let's say it's $5000. • Variable4 = interest on capital: let's say it's 5% per year. How much money is needed at age 65 to get$5000 per month until age 90 given the fact there is no need for succession?

The usual, but controversial, answer to this question is a 4% withdrawal rate.

This means a net worth of ($5000 * 12 months ) / 4%, i.e.,$1,500,000

If you want to play with the numbers, based on historical data, you can use the FIRECalc simulator.

• Wow, that's exactly what I needed! – user6482 Jun 2 '12 at 8:24

$3,679,163.80 I made these assumptions that you did not state: • You'll retire in 2042 • Inflation will average 3.5% per year from 2012 - 2067 • Your yearly budget of$60,000 will grow at the rate of inflation
• The yearly budget is withdrawn at the start of the year and the interest is paid at the end of the year, based on the amount left over after the withdrawal

Then using Excel, we find that with a starting point of $3,679,163.80, we can achieve your goal. The formula for Yearly Budget is =G$1*((1.035)^(A3-2012)) and the formula for Money left at year end is =(D4/1.05)+C4 For 2067, enter $0 leftover, and for 2066, enter$397,988.47 leftover.

G$1 is$60,000

G$2 is 0.05 Year Age Annual Budget Money at year end 2041 64$0.00    $3,679,163.80 2042 65$168,407.62    $3,686,293.99 2043 66$174,301.89    $3,687,591.71 2044 67$180,402.46    $3,682,548.71 2045 68$186,716.54    $3,670,623.78 2046 69$193,251.62    $3,651,240.77 2047 70$200,015.43    $3,623,786.61 2048 71$207,015.97    $3,587,609.18 2049 72$214,261.53    $3,542,015.03 2050 73$221,760.68    $3,486,267.07 2051 74$229,522.30    $3,419,582.01 2052 75$237,555.58    $3,341,127.75 2053 76$245,870.03    $3,250,020.60 2054 77$254,475.48    $3,145,322.38 2055 78$263,382.12    $3,026,037.27 2056 79$272,600.50    $2,891,108.61 2057 80$282,141.51    $2,739,415.46 2058 81$292,016.47    $2,569,768.94 2059 82$302,237.04    $2,380,908.49 2060 83$312,815.34    $2,171,497.81 2061 84$323,763.88    $1,940,120.63 2062 85$335,095.61    $1,685,276.27 2063 86$346,823.96    $1,405,374.93 2064 87$358,962.80    $1,098,732.74 2065 88$371,526.49      $763,566.56 2066 89$384,529.92      $397,988.47 2067 90$397,988.47            $0.00  • Could you recalculate to take into account Joe's point that after 30 years of inflation starting from now, the retiree will need not 60k but ~$150k/yr to start? – Chelonian Jun 1 '12 at 16:07
• Sure, no problem. – Richard Krajunus Jun 1 '12 at 19:46

This is a present value calculation, which excel or any financial calculator can handle. N = 300 (months) %i = 5/12 or .05/12 depending on the program/calculator PMT = $5000 (the monthly payment) FV = 0 (you want to end at zero balance) This calculates a PV (present value of$855,300) Chad had it right, but used a calculator that didn't offer the PV function, so he guessed and changed numbers til the answer was clear.

user379 makes a good point, but why start inflation calculations at 65, and not now? You look like you're in your 30's, so there's 30 years of inflation, and $60K/yr in today's value will need to be closer to$150K/yr, given about 30 years of 3% inflation.

You can get the number you want pretty easily by plugging some numbers in to a mortgage calculator like this one.

Set the PMI and property tax to 0 and set your term to the duration you need. Then plug in numbers until your payment amount equals your monthly budget. Think of yourself as the bank in this process.

I started at 1mil over 25 years and that was over my budget so went down to 800k which was under just a bit, and found that you need about 850k based on your numbers.