Retirmenet Calculator Research

Age & Year

• Age: Your age for each year of the projection.
• Year: The year for that particular projection row.

Portfolio-related Values

• Total Taxable Portfolios: This refers to the total value of your taxable accounts (such as brokerage accounts) that are subject to capital gains taxes.
• Total Retirement Portfolios: This is the total value of your retirement accounts, such as IRAs or 401(k)s, which are tax-advantaged.
• Total Gross Portfolio Value: The sum of both your taxable and retirement portfolios, showing the total value of your investments.

Tax-Adjusted Values

• Estimated After-Tax Value: The net value of your total portfolio after accounting for taxes. It’s often less than the total gross portfolio value due to taxes that may be owed upon withdrawals from certain accounts.
• Estimated Annual Income: This seems to be your projected income for that year, potentially coming from the withdrawals of the portfolios or other sources of income.

Withdrawal-Related Values

• 4% Withdrawal: This represents different scenarios for withdrawing 4% of your total gross portfolio, typically used as a rule of thumb for sustainable withdrawal rates in retirement.
• 5% Withdrawal: Similar to the above but assuming you withdraw 5% of your total portfolio, which is generally considered a higher-risk strategy for portfolio sustainability.

Savings and Investment Contributions

• Pre-Tax Savings: Amount you are contributing to your tax-deferred retirement accounts (like a 401(k)) for that year.
• After-Tax Savings: Savings contributions to accounts that do not have tax benefits, like taxable brokerage accounts.

Investment Growth

• Investment Rate of Return: This is the assumed growth rate of your portfolio for that year, reflecting the performance of your investments.

Spending and Earnings

• Annual Spending: Your projected annual expenses for each year.
• Annual Savings: The amount you are saving from your income each year, which is contributing to your portfolio growth.
• Post-Tax Earnings: This shows your income after taxes, available for spending or saving.
• Estimated Pre-Tax Earnings: This is your earnings before taxes are deducted, including any salary or other income sources.
• Estimated Taxes: The total estimated taxes you owe for that year based on your income, portfolio, and withdrawals.

Additional Considerations:

1. Inflation: While you included a basic inflation rate, retirement calculators should account for how inflation affects both expenses and portfolio growth. You may want to allow users to adjust the inflation rate and model how it compounds over time, affecting both savings and spending.

2. Life Expectancy: Users should be able to input their life expectancy to estimate how long their retirement savings need to last. Including a default value based on average life expectancy could help, but this should be customizable based on the user's health and family history.

3. Social Security or Pension Income: Include the option for users to input expected Social Security benefits, pensions, or any other regular income they’ll receive in retirement. This would reduce the amount they need to withdraw from their retirement portfolios.

4. Tax Rates: Different accounts (taxable, tax-deferred, tax-exempt) will have different withdrawal tax implications. Users may want to factor in both their expected income tax rates in retirement and the tax treatment of various accounts. This can get complicated but having an option to input an estimated tax rate would help.

5. Investment Returns: While you’ve included an investment rate of return, it’s essential to allow users to adjust this based on their own portfolio and risk tolerance. A range for conservative, moderate, and aggressive portfolios might also be useful.

6. Retirement Age: Allow users to input different potential retirement ages to see how it impacts their savings and withdrawal rates. Early retirees might have a lower Social Security benefit or a longer withdrawal period, for example.

7. Healthcare Costs: Healthcare expenses, including potential long-term care, can be a significant and unpredictable cost in retirement. Adding a placeholder for estimated healthcare costs could be crucial, particularly since these costs often increase with age.

8. Withdrawal Strategy: Different withdrawal strategies (like the 4% rule) affect how long a portfolio will last. Users might want to try different withdrawal rates (3%, 4%, 5%) or adopt dynamic withdrawal strategies (i.e., reducing withdrawals in down markets).

9. Required Minimum Distributions (RMDs): For tax-deferred accounts, users should consider RMDs after a certain age (e.g., 73 in the US). Users should be able to account for this, as they must start withdrawing a minimum amount whether they need the income or not.

10. Spousal Retirement Planning: Some users may have spouses or partners with their own income, retirement accounts, and social security benefits. A joint retirement planning feature would allow for more comprehensive planning.

11. Debt: Include an option for users to input outstanding debt (e.g., mortgage, student loans, credit card debt) and planned debt pay-off strategies, as this affects both savings and spending power in retirement.

Customizable Variables for Users:

• Annual Spending: Allow users to input and adjust their expected retirement spending, which will have a huge impact on when they can retire.
• Pre- and After-Tax Savings: Let users adjust their savings contributions pre-tax (e.g., 401k, IRA) and after-tax (e.g., brokerage accounts) to see how additional savings affect their timeline.
• Rate of Return on Investments: Offer users the ability to choose between conservative, moderate, and aggressive investment portfolios to project future growth.
• Tax Rates: Input an estimated tax rate, which users can adjust based on their own situation.
• Social Security/Pension Benefits: Allow users to input their expected benefit amounts and start dates to reduce withdrawals from savings.
• Life Expectancy: Let users adjust the expected life expectancy, so they can see how it affects the longevity of their retirement funds.
• Withdrawal Strategy: Let users choose different strategies, such as fixed-percentage withdrawals or dynamic withdrawals (based on market conditions).
• Healthcare Costs: Include a section where users can estimate annual healthcare costs and increase that over time to account for aging.

Debt Repayment: Allow users to factor in when debts will be paid off, as this will impact their spending and savings rate pre-retirement.

 

Key Elements to Consider for Your Approach:

1. Starting with High-Level Goals:

   • Your idea to ask for retirement goals is a solid foundation. Some potential goals you might ask about could include:
     • Early retirement (before traditional retirement age).
     • Comfortable retirement (maintaining current lifestyle).
     • High spending in retirement (e.g., for travel or large expenses).
     • Minimizing risk and having a sustainable income stream.
     • Maximizing legacy (leaving money to heirs).
   • Offering preset choices or custom options will help users feel guided while allowing for flexibility.

2. Step-by-Step Breakdown of Values:

   • After determining their goal, you can ask them for key values in small chunks so it doesn’t feel overwhelming:
     • Current Savings: Taxable and retirement.
     • Expected Income: Current and any changes they expect (e.g., raises or drops).
     • Savings Rate: Current and planned future contributions.
     • Estimated Spending: Current and anticipated retirement spending.
     • Retirement Age: When do they want to retire?
     • Expected Rate of Return: Offering them ranges based on their risk tolerance (conservative, moderate, aggressive).
     • Tax Rates: You can offer defaults, but allow them to input custom rates if they have specific knowledge.

3. Allow Adjustments:

   • Before showing results, allow the user to tweak assumptions, such as:
     • Risk Tolerance: Let them adjust between conservative, moderate, and aggressive investment portfolios.
     • Retirement Age Scenarios: What happens if they retire 5 years earlier or later?
     • Withdrawal Strategies: Allow them to try different withdrawal rates (3%, 4%, 5%).

4. Interactive Education:

   • You want the tool to be a learning resource, which is fantastic. You can incorporate explanations alongside each prompt:
     • Tooltips or Popups: When asking for each input (e.g., income, savings rate), provide concise explanations on why it matters.
     • Scenario Examples: Show them how different choices (like retiring early vs. late) might impact their financial health.
     • Educational Resources: After giving results, provide resources like articles or videos on how to improve their savings or optimize taxes.

Alternative Approaches to Consider:

1. Pre-filled Data for Newbies:

   • For users with no financial knowledge, you could have an option for "pre-filled defaults." For example, you could suggest default values for income growth, inflation, savings rates, and investment returns based on typical data. This allows users to adjust things later after they see results and learn more.

2. Gamified Exploration:

   • You could add a gamification aspect by letting users explore "What if" scenarios. For example:
     • What if they increased savings by $200/month?
     • What if they retired at 62 instead of 67?
     • This allows users to see the immediate impact of changes in an interactive way, motivating them to engage more deeply with their financial future.

3. Dashboard-like Interface:

   • Instead of a linear prompt approach, you might offer a dashboard with several sections (goals, income, savings, retirement age, risk tolerance, etc.), allowing users to fill in information in any order. This could make it feel less restrictive and give users more control over the process.

4. Visuals and Graphs Throughout:

   • Rather than waiting until the end, you might consider showing smaller graphs throughout the process. For example:
     • After entering their savings rate, show them a projected savings growth graph.
     • After inputting their retirement age and expected returns, display a preliminary graph showing how long their money could last.

5. Risk Profiles:

   • Along with risk tolerance (aggressive vs. conservative), you could implement a simple risk profile quiz upfront. It would ask about the user’s preferences, and the calculator could adjust assumptions and give warnings accordingly (e.g., "Based on your risk profile, a 5% withdrawal rate might be too aggressive").

6. Summary and Sensitivity Analysis:

   • Once the user inputs everything, show them a summary page with key numbers (when they can retire, how much they can withdraw, etc.) and allow them to tweak one or two values while dynamically showing how that changes their results.

Conclusion Step:

• Graphical Results: Offer users graphs and visual representations of their financial journey. Some potential graphs:
  • Portfolio Growth: Showing how their portfolio will grow over time, pre- and post-retirement.
  • Spending vs. Income: A graph that shows their projected spending versus withdrawal income, illustrating sustainability.
  • Scenario Comparisons: If they try different retirement ages or savings rates, side-by-side comparisons can show how much longer their money will last.

Final Thoughts:

This interactive, user-friendly, and educational approach would help users not only determine when they can retire but also teach them about financial planning. Starting with prompts to gauge their needs is a strong foundation. Additionally, giving users flexibility, showing interim results, and offering tools to tweak inputs or view alternative scenarios will make the tool even more powerful. Combining this with graphs, simple explanations, and educational resources will enhance user experience for people with varying levels of financial knowledge.