bonus: using a reverse retirement calculator

If you've just been squirreling away whatever you can afford and praying it's enough to cover you in retirement, prepare to have your mind blown. Let me introduce you to your new retirement-planning best friend, the reverse retirement calculator




If you Google "reverse retirement calculator", a few options pop up. The picture above is a screenshot from Bloomberg's calculator. I like this one because it's really simple to use and easy to understand. Feel free to try your hand at a few different calculators and see what each spits out!


step-by-step instructions 

Step #1 - Enter your current age.

Step #2 - Enter your expected retirement age.

  • This is totally up to you! The average person retires between 60 and 70 years old, but if you have dreams of retiring when you're 50, more power to you. This calculator will show you just how much you'd need to be saving to retire that early.

Step #3 - Enter the amount you currently have saved for retirement (your current 401(k) account balance, for example) in the box next to "Current Amount in Fund ($)".

Step #4 - Enter your "Expected Annual Rate of Return (%)".

  • This one's a bit tricky because it's subjective. No one knows how the market will perform in the future; all we have to go on is what it has done in the past (its past performance). 
  • I'm sure you've heard that "the market, on average, has returned 9-10% a year". Depending on how that return is calculated, the average actually ranges from as low as 7% to as high as 10%. However, history doesn't always repeat itself, so using a number that high could underestimate the amount you should be putting away. 
  • I tell my friends and family members to use a number between 4% and 6%. This lower return factors in a few things (management fees, inaction, the effects of diversification) that are often overlooked in the financial planning process. The lower the return you expect, the more you'll have to put away to reach your goal.
  • I don't know about you, but I'd rather have more than I need to retire than reach that age and not have enough money. Remember, it's always easier (financially and psychologically) to scale back your contributions than it is to try to find more money to save. No one ever retires and says "I wish I had saved less."

Step #5 - Now you've got to do a little math and be honest with yourself about your financial goals. Use either the income method or expense method to estimate how large of a nest egg you'll need for retirement.

  • Let's assume you're making around $50k per year.
  • Multiplying that number by 20 tells us you'll need at least $1 million to live off of in retirement.
  • Enter your goal number (in this case $1,000,000) in the box next to "Enter desired fund amount to calculate required annual contribution."

Step #6 - Click "Calculate" and voila! The annual contribution you'd need to make based on your other inputs (age, current savings, rate of return) shows up to the right of the graph. 

Step #7 - Just a minute! The number the calculator spits out is only the annual contribution. You've got to break that down into a per pay period amount. Here are the calculations you should do for various pay schedules:

  • Paid weekly: Divide your annual contribution number by 52
  • Paid biweekly (every two weeks): Divide your annual contribution number by 26
  • Paid monthly (once per month): Divide your annual contribution number by 12

Step #8 - The final step is to change your contribution amounts to make sure you're on track to reach your goals.

  • You can typically do this on paper or online.
  • If you prefer a paper trail, ask your plan administrator for a contribution change request form.
    • Not sure who your plan administrator is? Ask your human resources (HR) department for help.
  • If your plan has an online platform, login to your account and make the change that way. 


Periodically compare your account history or statements with your pay stubs to make sure the correct amount is being taken out of every paycheck. Don't just assume that your change request went through, or that you can set and forget these things. Always play an active role by putting yourself in the driver's seat of your retirement plan. After all, this is your money and your future we're talking about here. Own it


three examples

Disclaimer: These examples are simply for educational purposes. They are not to be taken as hard and fast financial advice. You are responsible for the inputs you choose and the resulting annual contribution calculations. Consult a licensed advisor for more help. 


Example 1

You're 25 years old, making $40k per year, want to retire by 65, have not started saving for retirement yet, and think 6% is a reasonable rate of return.

Using the income method, you estimate you'll need 20x your current income, or $800k, to retire. After typing in those values and hitting "Calculate", the calculator says you'll need to contribute $5,169 per year to reach your $800k goal.

  • Paid weekly = $100/week
  • Paid biweekly = $200/paycheck
  • Paid monthly = $430/paycheck




You're 40 years old, making $60k per year, want to retire by 70, have $50k in your 401(k) account, and think 8% is a reasonable rate of return.

Using the income method, you estimate you'll need 20x your current income, or $1.2 million, to retire. After typing in those values and hitting "Calculate", the calculator says you'll need to contribute $6,152 per year to reach your $1.2mm goal.

  • Paid weekly = $118/week
  • Paid biweekly = $236/paycheck
  • Paid monthly = $513/paycheck



example 3

What if, in Example 2, your account doesn't earn an average return of 8% per year? What if it only returns 6% per year? How far away from your goal of $1.2 million would you be?

Let's take a look. Instead of typing in your desired amount at retirement, select the option above that says "Enter annual contribution to calculate fund balance at retirement." In this case, we'd enter $6,152. We'd also need to change the "Expected Annual Rate of Return" to 6% instead of 8%.

Hit "Calculate" and.... $773,540! That's how much money you'd have when you're 70 years old if your account only earned 6% per year. $770k is significantly lower than the $1.2 million nest egg you were hoping for. 




To reach your $1.2 million goal with an average annual return of 6%, you would have to contribute $11,546 per year.

  • Paid weekly = $222/week
  • Paid biweekly = $444/paycheck
  • Paid monthly = $962/paycheck



Example 3 shows why it's important to low-ball your expected annual rate of return. If you overestimate that number, you may end up falling quite short of your financial goals. To help lessen that risk, use a more conservative number between 4-6%.

Remember, you'll never wish you had saved less. You can always scale back your contributions if you're lucky enough to be ahead of schedule. It's harder to scrounge around for more money to save once you're used to living a certain lifestyle.