Getting the Most Out of Your 401(k) Retirement Calculator

Cheri Franklin CFP |

When you log into your Clarity 401(k) account, you should see a message along the lines of the following: “Based on what you have saved today, your balance could grow to $X by the time you retire. That could be $Y/month.” The first important thing to understand is that the projected future balance is based only on today’s account balance and does not reflect future contributions from either yourself or your employer. Furthermore, that number is expressed in future dollars, not today’s dollars, so its purchasing power is lower compared to having the same dollar amount today. By itself, the projected future balance is not very helpful, so here are some things you can change to make it useful.

First, click on the box, “Is This Enough”. You will have the option to enter your current salary on either a monthly or annual basis. Next, you can set your savings rate percentage which should include your contribution as well as your employer’s. Please bear in mind that if you’re under 50 years old, the maximum amount you can defer for 2020 is $19,500, and if you’re 50 or over, you can save an additional $6,500 for a total of $26,000. Your assumed retirement age defaults to 67, but you can set it wherever you like (please try to be realistic). One important change that occurs when you enter your salary is that the calculator will add in an approximate number for your Social Security income to the projected monthly amount.

If you would like to walk a little further into the weeds, then click on “Advanced Options”. The first thing you can do is to acquire a view of your overall financial picture by entering an amount for “Current Balance of Other Assets”. We would recommend including other retirement accounts and even taxable savings that have not been earmarked for other purposes. The investment returns before and after retirement are defaulted to 5%. We suggest leaving them there. One important caveat is that the calculator assumes constant returns, and we all know that does not happen in real life. The “Income % Needed in Retirement” does not appear to impact the calculated results, and “Inflation” only impacts salary and the resulting savings. Leaving it at 3% is reasonable.

Life Expectancy defaults to age 90, and we recommend leaving it there unless you have a particular health-based reason to change it. Excluding Social Security, the projected monthly income is the amount that can be consistently withdrawn from your retirement account(s) until they are depleted at the end of your life expectancy. Yes, the assumption is that you are driving around with this bumper sticker!

Speaking of excluding Social Security, you can accomplish that by selecting “No” on that option. However, please do not invoke this option out of the belief that Social Security will pay you zero because, as we explained in this article, a worst case scenario would still have retirees collecting about three-quarters of their promised benefits. If you have “Yes” selected, then your projected monthly benefit will be impacted by your marital status. It defaults to single.

For those who wish to learn more, we recommend clicking on and reading “How does the retirement calculator work?” towards the top of the page. At the end, you will find the important caveat, “All investing has risk, including the possible loss of money you invest. You can use these estimates to start a conversation with a qualified financial professional.” As your plan’s qualified financial professionals, you should always feel free to reach out to us if you are contemplating a change in your savings rate or fund selection.