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Retirement Nest Egg Calculator

Find the savings your retirement income requires

How it is calculated

The tool discounts a level stream of yearly withdrawals back to the day you retire: nest egg = income × (1 − (1 + r)−n) / r. Here income is the yearly amount you want (in today's money), r is the real return as a decimal (3 in the form means 0.03) and n is the number of years. Each withdrawal is treated as taken at the end of its year, so the pot keeps earning during the year. If the return is exactly 0, the formula switches to income × n. The second figure, total withdrawn, is simply income × n. Income and years must be above zero and the return cannot be negative; otherwise there is no result. Taxes, fees and pensions are not modelled.

Worked example

You want 40,000 a year for 25 years and expect a real return of 3%. Step 1: 1.03−25 = 0.47761. Step 2: 1 − 0.47761 = 0.52239. Step 3: divide by 0.03 to get 17.4131. Step 4: 40,000 × 17.4131 gives a nest egg of $696,525.91. The total you would withdraw over the period is $1,000,000.00, so the investment growth covers about 30% of it.

Try this example →

Common mistakes

  • Typing a nominal return. If your portfolio earns 7% and inflation is 3%, enter about 4, not 7; otherwise the target is understated because the income no longer keeps its purchasing power.
  • Entering the return as a decimal (0.03). The field expects percent, so 0.03 would be read as 0.03%.
  • Entering a gross income you will not actually spend. The tool funds exactly the amount you type, so use the after-tax spending you need, or add the tax yourself.
  • Expecting a result for a negative real return. The engine returns nothing for that, so test a pessimistic case with 0.
  • Forgetting that the pot is assumed to hit zero at the end of the last year. Plan with extra years if you worry about living longer.

Sources

About this calculator

This calculator finds the lump sum needed at retirement using the present value of an annuity formula: PV = PMT × [1 − (1 + r)^−n] / r, where PMT is the annual income you want, r is your expected real (after-inflation) rate of return, and n is the number of years the money must last. Using a real rate rather than a nominal one keeps the target expressed in today's purchasing power, so the withdrawals it funds keep pace with rising prices.

Financial planners and pre-retirees use this to translate a desired lifestyle — say $40,000 a year for 25 years — into a single savings target, and it's the same logic behind the popular "25x expenses" and 4% withdrawal rules of thumb, just made precise for any return rate and time horizon.

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Comments (1)

  • Editorial team

    If a pension or other steady income will cover part of your spending, enter only the shortfall your savings must fund. Needing 40,000 a year with 12,000 coming from a pension means typing 28,000, which at a 3 percent real return over 25 years gives about 487,568. Extending to 30 years raises that to about 548,812. What yearly figure and horizon are you testing?

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