Are you on track to reach your retirement goals? Use our retirement savings calculator to find out how much you need to save to build up your nest egg.

Definitions of Common Retirement Terms

As you plan for retirement, you’ll come across a number of terms that may not be familiar to you. Here are some of the common retirement-related words and phrases you need to know.

Retirement age: Your retirement age is the age you plan to retire. If you plan to collect Social Security, note that the minimum age is 62, while what the Social Security Administration considers to be your “full retirement age” — the age at which you can collect 100% of the benefits you are entitled to — ranges from 66 to 67, depending on the year you were born.

Retirement income: Retirement income is all the money you will draw on to fund your retirement. There are several possible sources of retirement income you may tap into, including guaranteed income (Social Security, annuities, etc.), pension plans, IRAs, retirement savings (401(k), 403(b) and 457 plans), and other nonretirement savings, including brokerage accounts, savings accounts and certificates of deposit.

Social Security: Social Security is a program funded by the U.S. Treasury designed to pay retired workers a continuing income after retirement.

Pension: A pension is a benefit offered by some employers. With a pension plan, the employer promises to provide you with regular payments upon your retirement. The amount usually depends on how long you worked for an employer and your salary.

Investment return: This is the percentage of interest you earn on your investments. The average annual rate of return on a retirement savings account typically ranges from 3% to 10%, depending on your investment mix and market performance.

Inflation: Inflation refers to the increase in the costs of goods and services across the economy over time.

Annuity: An annuity is a financial product that pays out a fixed amount in a series of payments.

IRA: IRA stands for Individual Retirement Account. IRAs are tax-advantaged accounts — with traditional IRAs, contributions are usually tax deductible. You won’t have to pay taxes on any dollar you put into your IRA in a given year.

Roth IRA: A Roth IRA is a qualified individual retirement account that allows you to grow investments tax-free. Unlike with a traditional IRA, you contribute money you’ve already paid taxes on.

401(k): A 401(k) is a retirement savings account that you can receive as part of your employee benefits program. Contributions are made pre-tax.

403(b): 403(b) plans are retirement funds offered by public schools, colleges and universities, churches and tax-exempt charities.

457: 457 plans are tax-advantaged retirement savings plans offered by many state and local governments and some nonprofit organizations.

How Much Do You Need To Save To Retire?

There is no one-size-fits-all answer when it comes to how much money you need to save to retire, but there are several rules of thumb you can use as a starting point. One common piece of advice is that you need about $1 million. Another suggests saving enough to replace 80% of your pre-retirement salary. But in the end, the amount you need to have saved to retire depends on a number of factors, including your lifestyle preferences, the amount of income you will have in retirement and more.

“How much you need to retire is a math equation based upon your expenses, the age you retire at, how long you will live and investing assumptions,” said Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth. “Each person has their own number and what they are willing to give up in retirement (or not).”

To calculate how much you will need, you will need to figure out how much it would cost to maintain the standard of living you want, plus your withdrawal rate. You also need to understand your risk tolerance and consider the effects of inflation.

How To Catch Up If You’re Behind on Your Retirement Savings Goals

Once you know how much you will realistically need in retirement, you may find that you’re not where you should be in terms of retirement savings. Fortunately, there are ways to catch up. If you are 50 or older, you are able to make what are known as “catch-up” contributions to pad your retirement savings. And if you are younger, time is on your side thanks to compound interest.

However, if you are coming up on retirement and find that you are not even close to where you want to be, you may want to look for ways to cut back on your expected living costs, including downsizing or moving.

*Disclaimer: This calculator provides an estimate based on the information provided, and is not intended to be a substitute for professional financial advice.

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