Target Retirement Amount

Overview


A very simple calculation assumes that the retiree can plan a fixed amount of money required for each year of retirement, and a fixed interest rate that is earned on retirement savings. Then, assuming we have a fixed number of years in retirement, the amount of money required in the retirement portfolio can be calculated.

Retirement Withdrawals


Once you have saved a given amount of money, you will begin to witdraw from it during retirement. We present a formula that computes your remaining savings at year D of retirement assuming that your savings are invested at a rate R, and you withdraw a constant amount labeled Withdrawal.
{% Remaining \: Savings_D = Initial \: Savings(1+R)^D - Withdrawal \times \sum_{j=1}^D (1+R)^{D-j} %}
If we want to have enough savings for D years of retirement at the given withdrawal amount, we need
{% Initial \: Savings = Withdrawal \times \sum_{j=1}^D 1/ (1+R)^j %}

Implementation


The following code implements the equations above to calculate how large a retirement portfolio one needs. 


let periods = 20;
let rate = 0.05;
let savings = 0;
let withdrawal = 40000;
for(let j=1;j<=periods;j++){
  savings += withdrawal/Math.pow(1+rate, j)
}
Try it!

Contents