Nestegg Cycle © SETTING YOUR GOAL:
For enough background, please be sure you have read "CONCEPTS & EXAMPLES", "What this IS" and "What this is NOT".
All data items to be entered, come with defaults, which you are free to change with values that make more sense for you.
This item, the Goal, is a little more involved than the others, and is explained on its own page, here:
Goal Salary Replacement%:
This number will set the desired size of your annual retirement payout, in relation to your salary.
After the first year of retirement, you'd get a cost of living adjustment (COLA) to match the inflation rate
you enter (which is defaulted to 2.5%). A default salary replacement value of 75
is provided to get you started.
Goal Adjustment for Spending Power:
You can use either the goal percentage As Entered (such as the default 75%)
OR, the Adjusted for Spending Power goal percentage, which automatically recalculates as you change the other numbers.
There is a pair of "radio buttons" under the GOAL, to select one or the other.
The selected value gets highlighted in yellow, and will be used in the calculation when you click on CALCULATE.
DISCUSSION of Goal Salary Replacement%:
If you want your retirement payouts to fully match your final year's salary, enter 100 here.
Most people who work to full retirement age do not need to go as high as 100%.
A typical starting point might be 50%, but you are free to try higher or lower as you see fit.
Especially if you are thinking about this while young enough, with several decades of contributions ahead,
try the calculations for 100%, 125%, or even more. The software allows up to 999.99%.
Of course there is no free lunch: the larger the payout you desire, the harder your money will need to work
until then. This calculator will make it clear to you, whether you have a viable pathway
to your retirement payout goal. The choice is up to you,
and may involve considerable homework and thought, as to expected lifestyle and expenses, to determine the right goal.
Keep in mind that if you expect to receive Social Security and/or other retirement benefits, your are only
seeking to cover that portion of your expenses ABOVE your other retirement income sources.
The flipside is that if you are seeking early retirement, you may need to cover your own medical insurance,
which is more expensive than employer-sponsored medical insurance,
and you will not be old enough for a government pension (Social Security) so your salary replacement goal
will need to be adjusted upwards.
DISCUSSION of Spending Power Adjustment:
IF you've set inflation% and raise% to the SAME VALUE, your spending power never changes and the adjusted goal would be
the same percentage as the number you enter (such as the default 75%). IF your raises are higher than inflation,
your spending power INCREASES each year and your adjusted goal percentage goes DOWN, because you'd need LESS of your
final salary to achieve the intended effect. IF inflation is the higher number, your spending power DECREASES each year,
and your adjusted goal percentage goes UP, because you'd need MORE of your final salary to achieve the intended effect.
Either way, the effect becomes more pronounced over time due to compounding,
and this gives you the ability to see what that effect will be, and optionally take it into account.
Under the default conditions of 3.0% raises, 2.5% inflation, and 42 working years (age 25 through 67)
you gain a small amount of spending power each year, leading to the adjusted goal of 61.43% salary replacement in this case.
SEE new HELP TOPIC: "SPENDING POWER" (added in May of 2022) - for a more in-depth discussion.
The typical new-hire
recommendation of a 3% to 5% salary contribution,
when paired with the low investment yield of an ultra-safe savings
account (yielding well UNDER 1% as this is written in early 2021), could
on track for a very unsatisfactory retirement result.
The message of this website is that whatever your other details, there is always a RANGE of PAIRED CHOICES,
lowest contribution rates requiring highest investment yields, and lowest investment yields requiring highest contributions,
which will get you to your Goal Salary Replacement% !
This site presents you with your custom plotted curve of
contribution-versus-yield possibilities, given the information you
To see this curve, click on "SHOW PLOTTED TRADEOFF CURVE", which will
appear directly to the right of the "CALCULATE" button,
after the submitted calculation has completed.