To calculate your future financial standing, Kate factors a ton of variables. Based on what information you tell Kate, she will tell you how far your current savings and savings rate will get you in retirement. Kate also estimates your social security income and your future income needs. Once Kate understands your current financial standing she can solve for any shortfall in your total assets when you reach your full retirement age, this is commonly called your "gap."
Kate is different from most financial calculators because she doesn’t focus on how much more you need to save during your working years to reach your retirement goals. Most people assume in order to save more they need more income. Instead, Kate asks you to consider changing your lifestyle by spending less of what you’ve earned. This means you will save what you don’t spend. Seems like the same thing as saving, right?
Well, no. It’s actually different because each time you reduce your lifestyle by choosing to not spend money, you are also reducing the amount of money you’ll need to live off of in retirement.
Adopting a lifestyle of requiring less has double benefits when compared to a lifestyle that constantly reminds you to save more. We believe it’s easier for you to spend less than for you to always save more. Kate is your guide for personal finance and wants to get you to retirement in the most efficient and realistic way possible.
Next, Kate helps you see how long your assets will last you and any shortfall you may encounter with your current savings strategy. She then lets you play with your financial information to see what you need to save on a daily basis to reach your retirement target. This is your number to focus on. Once you have your number, use Kate’s spend-less tips to start making small lifestyle changes.
Explain my “Gap”
The Gap is the difference between what you're currently saving, and what you may need to do in order to not run out of money within a normal life expectancy. Kate illustrates your gap in a variety of ways, helping you understand how long your money will last.
Kate estimates your income will continue to grow with inflation.
Kate adjusts your annual savings amount to grow at the same rate as your income, which is estimated to grow with inflation.
SOCIAL SECURITY BENEFIT ESTIMATES
Kate estimates your social security benefit using a similar methodology to the social security administration's Social Security Quick Calculator. Your benefit estimate depends on your date of birth and your earnings, but not your actual earnings, your actual benefit may vary from Kate’s estimation. She also assumes you will take social security at full retirement age.
RATE OF RETURN
The rate of return used for the growth of your assets is set at 7.25% pre-retirement and 5.50% post retirement, these figures are generally accepted as the standard for a moderate risk tolerance. In reality, you may earn more or less and remember, past performance has no bearing on future results.
Kate uses an annual inflation rate of 2.5%, inflation changes year by year based on a number of factors. Inflation during your lifetime may be different than her estimate. For more information, visit the Bureau of Labor Statistics.
Kate does not factor in any local, state or federal taxes in this visualization. Please take your taxes into consideration. Taxes could affect your income needs and distributions.
Kate assumes you will live to 95. She does not factor your spouse’s or partner's life expectancy.
DO YOU FACTOR IN MY 401(K) OR MY EMPLOYER'S RETIREMENT CONTRIBUTIONS?
In order to account for employer contributions or any other savings, please add that amount to the monthly/annual savings rate.
HOW DO YOU KNOW HOW MUCH INCOME I’LL NEED IN MY RETIREMENT?
Based on your answers to how your current lifestyle is “below”, “at”, “above” your means as well if you plan on working in retirement or if you have a pension, Kate calculates an estimate of how much of your current income you will need to replace in retirement. If you feel Kate estimated too high or low, you can re-ask Kate with different assumptions.
HOW DO I CONTROL MORE VARIABLES?
Kate was designed to help you see the power of learning to spend less over the course of your lifetime. If you want more control over investment outcomes and taxes, we recommend trying the retirement calculator from Smartasset.
No representations, warranties or guarantees are made as to the accuracy of any projections or calculations. Neither Edukate, Inc., your advisor/consultant, nor its affiliated companies shall be liable for any damages or costs that arise with your use of this tool. This information is for illustrative purposes only and does not serve, either directly or indirectly, as legal, financial or tax advice. Please consult a qualified professional financial and/or tax advisor to discuss YOUR individual financial and tax situation.