What is an IRA Calculator and How do I Use it?


IRA calculators are used to estimate how much money you will have when you retire. They are generally very easy to use, requiring just a few pieces of financial information on your part and. They are also customizable, which allows you to run multiple retirement scenarios in a matter of seconds. The basic information that you will need is how long until your retirement, how much money will you contribute, and what rate of return do you expect on your investments.

First, the IRA calculator will ask your current age and at what age you want to retire, or how many years you want to contribute to your IRA. So if you are 35 years old and want to retire at 65, then you have 30 years to contribute. Next, they’ll want to know how much money you will contribute each month or year. Most calculators will use yearly contributions, so if you make monthly deposits you will multiply that by 12. For example, if you want to contribute $400 a month, then put down $4,800 as your yearly contribution.

After that, you will need to estimate the yearly rate of return that you expect on your investments. There is no right or wrong answer here, just make your best guess as to what your think your portfolio will return based on your risk preference. Historically, portfolios consisting entirely of stocks return around 8-10% over a long period of time while bonds will return a few percent less than that, but also have less volatility. Generally, the longer you have until retirement, the higher the percentage of stocks you want in your portfolio. If you are close to retirement, then you will probably want a higher percentage of bonds. That way, you are not as susceptible to a large decline in your portfolio due to a market crash.

Now that you have entered in that information, you are ready for the fun part. You get to calculate how much money you will have at your retirement. The amount you need to comfortably retire is going to differ for each person, but the great thing about IRA Calculators is how easy it is to see how changes to the information you enter will affect the final savings amount.

You can lower your retirement age to 60 and see how much more you need to invest each year to reach the same amount. If you want more money for your retirement, you can see how working longer or increasing your contribution will result in higher savings. You could increase the rate of return estimate to reflect a higher percentage of stocks or you could lower it if you want to be more conservative. Each change will alter the final amount, so play around with it and find a combination that works for your financial situation.

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