Paychex Retirement Calculator: Estimate Your Savings for a Secure Future

The Power of Time & Compounding

What is Compounding?

In simple terms, compounding means that you will earn interest not only on your 401(k) contributions, but also on any interest you've already earned. As a result, the earlier you start to contribute to your 401(k), the more powerful the compounding effect becomes, and the faster your 401(k) will grow.

Save a Little—Earn a Lot

Even small amounts like 1-3% of your salary can really add up over time. Investing less of your salary over a longer period can actually result in more money than by investing double the amount in half of the time. Start now with any amount you can, and build up to your goal over time.

Invest for Long-Term Success

Though planning for retirement can be intimidating, 401(k) plans have options that make investing easier for people who might not be familiar with the stock market. By having the right mix of stocks, bonds, and cash reserves, your assets will be able to maintain value in poor market conditions and increase in value when the market is doing well.

Benefits of a Retirement Account

See How Much You Can Save By Starting Now

Contributing to a 401(k) can generate a large immediate rate of return (ROR) on your investment. Let's see how investing 10% of a $1,250 biweekly paycheck could affect your assets.

By investing in a 401(k), you'd immediately take home $585 extra in tax savings. If your employer matches 3% of your salary, you'd get an additional $975 deposited into your retirement account for free. Assuming a 4% annual market rate of return, your account would also generate $169 of interest. At the end of the year, that's an additional $2,314 in your pocket and retirement account just for contributing to a 401(k).

In other words, contributing 10% of your salary to a 401(k) would generate a whopping 140% immediate rate of return.

You can see the effect of contributing to a pre-tax account such as a 401(k) in the pie charts below.

Post-Tax Retirement vs. Pretax 401(k)

Contributing to a 401(k) offers additional benefits beyond a post-tax retirement plan.

In our example, contributing to a pretax 401(k) saves $22.50 per biweekly paycheck or $585 a year, allowing more money to be invested without decreasing overall take home pay.

*Assumes $1,250 biweekly salary, $125 biweekly contribution, and 18% combined state and federal tax rate.

What Are the Benefits of a 401(k)?

Contributing to a pre-tax retirement plan such as a 401(k) reduces your taxable income. Because less of your money is being taxed, you can take home more money than if you contributed the same amount to a standard taxable savings account.

How Does it Work?

A 401(k) plan helps you save pre-tax dollars, which can grow without being taxed until you start withdrawing amounts from the plan. This feature is especially beneficial if, like most people, you will retire in a lower tax bracket. Your 401(k) also has the ability to grow faster than similar investments made to ordinary taxable accounts, because the interest you earn on your investment grows tax-free.

Helpful Resources

With GuidedSavings, a Web-and phone-based tool from independent financial advisor GuidedChoice^®, you can access helpful information on the basics of personal investing, along with calculators and other resources to help you reach your retirement goals.

Calculating Your Retirement Goal

See How Different Retirement Salary Goals May Be Achievable

Goals are very subjective and highly dependent on individual circumstances. Creating an accurate reflection of income requirements for retirement can make a goal more attainable.

By lowering your 65% retirement income replacement goal and increasing your contribution amount (orange bars), you may find a comfortable compromise at a 55% goal.

How Much Should I Calculate?

The amount you will live on after retirement can vary from person to person. Those who will live conservatively in retirement may budget for 50% of their pre-retirement income, while others who still have expenses like mortgages, or want to spend more on vacations and travel, may want to budget for 90% of their pre-retirement income.

Factors to Consider

When saving for retirement, you may also want to consider the amount of social security, and other benefits or wages you will receive each month. Living expenses such as mortgages, cars, predictable medical expenses, etc. should also be factored in.

Obtaining Your Goal

With the GuidedSavings tool by GuidedChoice^®, you'll receive a detailed and personal analysis of all of your retirement factors. This analysis will provide a specific recommendation that you can follow, or you may decide to implement a strategy of your own.

Portfolio Diversification

See How Portfolios Can Be Generally Allocated

Over time, the percentages of your asset allocations can shift. Let's see how to rebalance those assets back to their target allocations.

What If I Lose Money?

There is an inherent risk in the stock market, but choosing portfolio assets that are in line with your personal risk tolerance level will allow time and compounding to improve your chances of retiring successfully.

How Aggressive Should I Be?

The more aggressive your portfolio allocations, the higher the potential returns — but investments can drastically peak and valley over short periods of time. The closer you are to retirement, the less aggressive you want to be with your assets. Over time, you may want to reduce the percentage of stocks in your plan in favor of bonds, cash, and other investments that are more stable over the short term.

Rebalancing Your Portfolio

Rebalancing a portfolio is important in maintaining the correct proportions of assets. Over the course of time, some of your assets will do better than others, increasing their percentages within your total investment. It is important to monitor your assets and correct the imbalances to stay within your target allocations. GuidedSavings by GuidedChoice^® offers a "hands-free" service to keep your account on track. Since the market continually changes, your account is rebalanced on a quarterly basis to balance your fund allocations.

Methodology

State Tax Rate

Your state tax rate is calculated based on your input for Annual Salary and State Residence.

Marginal Federal Tax Rate

Your federal tax rate is calculated based on your input for Annual Salary.

Annual Raise Percentage

Default is 0% based on the assumption that salary increases will be nullified by inflation.

Per Month Contributions

The Per mMnth Contributions field allows you to select how you would like to enter your monthly savings amount:

Note: This calculator does not take into account contributions that exceed legal limits. To determine the contribution limits for your retirement accounts, please ask your plan provider.

Employer Match Percentage

The percentage your employer contributes to your 401(k) regardless of when that amount becomes vested.

Investment Return Percentage

The return on your investment is the percentage the account value increases based on your investment’s performance. This calculator assumes that your deposits are made at the beginning of the year, and the return is compounded at the end of the year. Your actual investment may or may not be compounded this way.

The default setting of 5% was chosen based on the historical performance of several stock indices including the Standard & Poor's 500. It is important to remember, however, that future rates of return cannot be predicted with certainty, and that investments which pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.

Retirement Income Amount

Calculated based on the percentage of annual income required to maintain your current standard of living in retirement. Default setting is 65%.

Immediate Rate of Return

The immediate rate of return (ROR) percentage is calculated by dividing the immediate earnings on your actual savings amount (employer match + tax savings) by the actual savings amount (annual take home pay with no 401(k) deferral – annual take home pay with 401(k) deferral.)

Example
Annual Salary = $50,000
Deferral Percentage = 3.00%
Employer Match = $1,500
Tax Savings = $283.50 (based on 17% marginal federal tax rate and 1.84% state tax rate)
Annual Take Home Pay without Deferral = $40,580.00
Annual Take Home Pay with Deferral = $39,363.50

1,500 + 283.50
---------------------------- = 1.46609
40,580 – 39,363.50

Immediate ROR for First Year of Investment = 146.61%

Projected Assets

The projected assets are the combined totals of your yearly contributions and yearly earnings from now until you retire.

Retirement Goal

The retirement goal amount is the total savings you would need to build in order to maintain your retirement lifestyle (based on the retirement income percentage you selected) until age 92.

Goal amounts are calculated using the present value of growing annuity formula*. This determines the lump sum required to pay the retirement income amount each year through age 92.

*Assumes a conservative portfolio with 3% annuity payment growth and 2.5% growth in account balance per year.

Total Earnings

Your earnings are based on the market return percentage you provided. The default setting is 5%. Earnings are calculated annually and include each year's total contributions.

Total Contributions

Your contributions are the actual dollar amount you will have set aside by the time you retire, based on the numbers you supplied to the calculator.

Annual Contribution

Your annual 401(k) contribution expressed as a dollar amount.

Difference in Take Home Pay

The impact of your contributions and tax savings on your take home pay.

Annual 401(k) Tax Earnings

Your current tax savings resulting from investing pre-tax dollars in a 401(k) plan.

Immediate Rate of Return

The immediate rate of return (ROR) percentage is calculated by dividing the immediate earnings on your actual savings amount (employer match + tax savings) by the actual savings amount (annual take home pay with no 401(k) deferral – annual take home pay with 401(k) deferral.)

Example
Annual Salary = $50,000
Deferral Percentage = 3.00%
Employer Match = $1,500
Tax Savings = $283.50 (based on 17% marginal federal tax rate and 1.84% state tax rate)
Annual Take Home Pay without Deferral = $40,580.00
Annual Take Home Pay with Deferral = $39,363.50

1,500 + 283.50
---------------------------- = 1.46609
40,580 – 39,363.50

Immediate ROR for First Year of Investment = 146.61%