Formulas & Methodology

1. Compound Growth

Each account balance grows annually at the growth rate you specify. The formula applied each year of the simulation is:

For example, a 401(k) with a $150,000 balance and a 6% growth rate would be worth $150,000 × 1.06 = $159,000 after one year, before any contributions or withdrawals.

Each account type (401k, IRA, Roth IRA, HSA, brokerage, real estate, bonds, etc.) uses its own individual growth rate, which you control via the slider next to each input field.

2. Pre-Retirement Contributions

During the accumulation phase (from your current age until retirement), the calculator uses your annual contribution if set, or your savings rate × annual salary (default 15%). Contributions are allocated following IRS annual limits:

1. 401(k) — up to $23,500/year
2. Roth IRA — up to $7,000/year
3. Traditional IRA — up to $7,000/year
4. HSA — up to $4,150/year
5. Brokerage — any remaining amount (no limit)

Contributions are added after growth is applied each year. Once you reach retirement age, contributions stop and withdrawals begin.

3. Inflation Adjustments

Expenses and most income sources are adjusted annually by your inflation rate (default 3%). Social Security uses a separate COLA rate (default 2.5%). Debt payments are fixed obligations and do not inflate. Inflation is applied at the end of each simulated year.

For example, with 3% inflation, $1,000/month in housing costs today would cost approximately $1,344/month in 10 years and $1,806/month in 20 years. Social Security grows at its own pace via the COLA adjustment, which historically averages around 2–3%.

4. Income vs. Expenses

Your monthly income and expense inputs are annualized (multiplied by 12) for the simulation. The net cash flow determines whether you have a surplus or a shortfall each year.

Social Security income is adjusted by the claiming age factor (see section 5). The emergency fund is a one-time lump sum deducted from liquid accounts at the start of retirement, not a monthly expense. If the shortfall is positive after applying RMD cash (see section 7), the calculator withdraws from your savings accounts to cover the gap.

5. Social Security Benefits

Your Social Security benefit is adjusted based on the age you begin claiming. The full retirement age (FRA) is 67. Claiming earlier reduces your benefit; delaying increases it.

If your retirement age is below 62, Social Security income is set to $0 (you cannot claim before 62). If your retirement age is above 70, the maximum factor of 1.24 is used, since benefits do not increase further after 70.

6. Withdrawal Strategy

When your expenses exceed your income (after applying any RMD cash), the calculator withdraws proportionally from all accounts based on their current balances. This prevents any single account from compounding unchecked while others are drained.

All account types are included in the proportional draw: Roth IRA, HSA, savings accounts, brokerage, real estate, CDs, bonds, commodities, cryptocurrency, other investments, 401(k), and IRA. Withdrawals from tax-free accounts (Roth IRA, HSA) are not added to taxable income. Withdrawals from all other accounts are treated as taxable.

7. Required Minimum Distributions (RMDs)

Starting at age 73 (per the SECURE 2.0 Act), you must withdraw a minimum amount each year from your traditional 401(k) and IRA accounts. The RMD is calculated using the IRS Uniform Lifetime Table:

The IRS factor decreases with age, meaning you must withdraw a larger percentage each year. Selected values from the table:

The RMD is based on the combined 401(k) + IRA balance as of December 31 of the prior year (before current-year growth). RMD cash is applied toward covering your expense shortfall before any other withdrawals. Roth IRAs are exempt from RMDs.

8. Federal Income Tax

Taxes are calculated using 2024 federal income tax brackets with progressive marginal rates. The calculator supports single and married filing jointly statuses. A standard deduction is applied before calculating tax ($14,600 single / $29,200 married filing jointly).

Tax is calculated progressively: only the income within each bracket is taxed at that rate. For example, if your taxable income is $60,000, you pay 10% on the first $11,600, 12% on the next $35,550, and 22% on the remaining $12,850.

The effective tax rate shown in the gauge chart is your total tax divided by your total taxable income:

State taxes are also included using a simplified flat or top marginal rate for each state. States with no income tax (e.g., Florida, Texas, Nevada) have a 0% rate. Total tax = federal + state.

9. Savings Longevity

The simulation runs year by year from your current age through your life expectancy. Each year, the following steps are performed in order:

1. Deduct emergency fund (one-time, at start of retirement)
2. Apply individual growth rates to each account balance
3. Add annual contributions respecting IRS limits (pre-retirement only)
4. Calculate retirement income with Social Security claiming factor
5. Calculate RMD from prior year-end balance if age ≥ 73
6. Determine shortfall (expenses − income − RMD cash)
7. Withdraw proportionally from all accounts to cover shortfall
8. Calculate federal + state taxes on taxable withdrawals
9. Record total savings balance after all withdrawals
10. Apply inflation to expenses and income at end of year

If your savings last through your entire life expectancy, the “Savings Longevity” equals your total years in retirement. If savings are depleted earlier, the simulation stops at the depletion year.

10. Future Savings Projection

The “Projected Savings at Retirement” metric uses a weighted average growth rate across all your investment accounts and compounds your total savings with monthly contributions:

The “At Retirement” figure shown in the Summary uses the detailed year-by-year simulation result (which includes IRS contribution limits, per-account growth, and emergency fund deduction) rather than this simplified formula. The weighted growth rate is shown for reference.