Retirement Calculator Variables: What Actually Matters and What Doesn't
Retirement calculators ask for many inputs, but not all of them matter equally. Here is how I prioritize when running the numbers. Retirement calculators ask for a long list of inputs: current age, retirement age, current savings, monthly contribution, expected return, inflation, social security, and more. When I first used one, I treated every input as equally important and spent time getting each one precise. After running hundreds of scenarios, I learned that a few inputs dominate the outcome and the rest barely move the needle. Here is how I prioritize. The Three Inputs That Matter Most The three inputs that most strongly determine whether a retirement plan succeeds are the savings rate, the time horizon, and the withdrawal rate. Savings rate is the percentage of income saved each year, and it matters because it is the variable you control most directly. Time horizon is the number of years between now and retirement, and it matters because compounding rewards time exponentially. Withdrawal rate is the percentage of the portfolio you spend each year in retirement, and it matters because it determines how large the portfolio needs to be. I focus my planning on these three. If I can increase my savings rate from 10 percent to 15 percent, the effect on the final portfolio is larger than tweaking my expected return from 6 percent to 7 percent.