Whether they're online or in your hand, calculators can help you plan your financial future.
The future is full of uncertainty, and sometimes that can make us uncomfortable. For example, it's unsettling not to know how much income you'll have in retirement. Fortunately, there are free calculators available online that can help us estimate the income we might receive in the future -- from annuities, Social Security, our own investments, and any other income streams. Let's review some of these calculators and go over how they can help you plan for a comfortable retirement.
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Annuity incomeAn annuity can be a source of steady and substantial income. Variable and indexed annuities are often problematic, featuring steep fees and restrictive terms, but immediate annuities tend to be more user-friendly. In exchange for a big up-front payment, you can get guaranteed monthly checks -- for the rest of your life. Pay a little extra (or accept smaller checks), and your payouts can also last throughout your spouse's life and/or be adjusted to keep up with inflation over the years.
How much can you expect from an immediate annuity? ImmediateAnnuities.com's annuity calculator will give you a rough idea. You can enter your age, gender, state, and the age at which you want your checks to start rolling in. Then you can enter how much you want to spend on the annuity, in which case it will tell you how big of a monthly check you might expect. You can also enter the size of the monthly check you'd like, and it will give you an idea of how much that will cost you.
For example, a 65-year-old man in Nebraska can pay $100,000 for monthly checks of about $563. That's $6,756 per year. It may not seem like much, but if he can spend $300,000, he can collect $1,689 per month, or $20,268 per year, which can supplement his Social Security checks nicely. If he wants a joint lifetime immediate annuity with his 65-year-old wife, then the monthly payments for $100,000 fall to $480.
The great thing about calculators like this is that you can fiddle around with them, enter different investment amounts, and see how much you might get. Note that you'll receive more if you buy your annuity when interest rates are higher, which they might be in a year or two.
Source: Social Security Administration.
Social Security incomeMost Americans have not socked away enough money for retirement, which makes Social Security income rather critical. Don't go through life assuming it will cover your expenses, because you might be unpleasantly surprised. The average monthly retirement benefit for Social Security was recently $1,337, or about $16,000 per year. If you're hyperventilating now, remember that that's just the average benefit. You can look up your estimated retirement benefits by creating an account on the Social Security Administration website.
Investment incomeAn annuity isn't your only option. You can generate annuity-like income from a portfolio of bonds that pay interest and/or stocks that pay dividends. There are lots of healthy stocks with dividend yields of 3% or more, and even a simple, broad-market index fund sports a dividend payout yielding about 2.1% at the moment. Here are some familiar names and their recent yields:
If you have a $300,000 stock portfolio with an average dividend yield of 4%, it will kick out $12,000 in cash per year. Better still, healthy and growing companies tend to increase their payouts over time, so your income will have some inflation protection. (Of course, dividends are never guaranteed, which is why you should favor solid and growing companies.)
Even a portfolio of stocks that pay no dividends can work if it's large enough, because you can simply sell off a chunk of it each year in retirement. You just don't want to end up running out of assets before you run out of breath -- that's one advantage of annuity income, which can last your whole life.
Whether it comes from annuities, stocks, and/or bonds, regular income is necessary in retirement. Photo source:TaxCredits.net.
If you're wondering how big of a nest egg you can amass by retirement, moneychimp.com's handy calculatorcan help. It's simple and can model compounded stock growth.
Enter how much your portfolio is currently worth and how much you expect to add each year. Then enter how long the portfolio will be growing and your expected growth rate. (You might use the stock market's long-term average annual rate of close to 10%, or you might be more conservative and go with 7% or 8%. After all, no one knows what the market will average over your investing time frame.)
For example, if your portfolio is worth $100,000 now and you can contribute $8,000 each year for 20 years, expecting it all to grow by an average of 8% annually, you'll end up with more than $860,000! If that yields dividend payments of 4%, then you're looking at more than $34,000 in annual dividend income -- almost $3,000 per month.
Don't leave your retirement up to chance. Take some time to assess your financial situation and your goals and come up with a plan. Let the Social Security calculator, an annuity calculator, and perhaps a simple handheld calculator help you. Your retirement might end up better funded than you expected!
The article This Annuity Calculator Can Estimate Your Retirement Income originally appeared on Fool.com.
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