How to Calculate Your Retirement Plan with Excel

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by Yoav Ezer · 11 comments

One of the purposes many families turn to Microsoft Excel for is working out their retirement plan in an easy and quick manner. This type of number crunching and planning is exactly the kind of math that gives me a headache. A bad combination of stress, risk and hard numbers!

Luckily some helpful folks have created many fine (and free!) Excel templates that help you to both figure out how much money you’ll need when you retire, and your 401(k) setup and a pension plan to reach your desired income goals.

A Word About 401(k)

When people talk about 401(k)s, they are usually talking about their pension investment. A 401(k) is part of the US Internal Revenue Code that deals with retirement plans, and which defers the taxation of your periodic savings.

Planning Your Retirement

When planning retirement, one has to do two basic calculations:

  1. Figure out what level of income you want to have when you retire.
  2. Figure out how to save so that you reach that level of income in the 401k plan.

Most finance-savvy people will probably have a ballpark figure for how much money they will need to live on, even without any fancy calculations.

There is no right answer, what you come up with is down to your lifestyle, where you live, and how much you need to service that lifestyle. If you need $100,000 per year to live then the amount of money you need to invest for a great retirement is far greater than if you need $50,000 per year to live. If you only need $20,000 per year then you will not need to put away quite so much money now.

Just remember when working out how much you think you will need that you’ll have to pay all your living arrangements from this income, scenarios and economies change, and that you will be taxed. At least put in some padding for some fluctuation of inflation rates, because this money will be put to use several decades from now and there is no opportunity to go back in time to correct your estimates!

Retirement Plan Details

There are pension plans, social security, and individual retirement accounts that you may have and may add to your total retirement income. When you calculate how much to save each month, you have to take into account possible increase in salary, interest rates, how long you intend the plan to produce income (ie. The morbid conversation about how long you think you will live for), employer contribution matching as well as other factors in your cash flow that may change over time.

Free Retirement Planning Spreadsheets

Some of the intricate calculations can be simplified and generalized in a spreadsheet, so people made some nice spreadsheets for us:

Already Have a Retirement Plan?

If you already have a retirement plan and you want to figure out what your savings will get you, use one of these Excel sheets:

Also, you can play with the figures to see what you can achieve if you modify your existing 401k plan within its terms.

Summary

Microsoft Excel and these nifty spreadsheets can come in very handy with planning for your retirement, but obviously if you have any questions or concerns then you are best off talking to a professional. There are many variables and options, and there are people out there ready and able to help you make the right decisions. Even so, with a bit of spreadsheet homework you can see if you are in the right ballpark!

Let us know if you have any better spreadsheets, tips or ideas in the comments.

About the author

Yoav Ezer co-authors the technology and productivity blog Codswallop. He is also the CEO of a company that produces PDF to XLS conversion software. 

 

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About Yoav Ezer
Yoav co-authors Codswallop, a technology and productivity blog. He is also the CEO of Cogniview. For more Excel tips, join Yoav Ezer on Facebook or Twitter

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