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Figure Out a Better Tomorrow

Build a plan to get where you want to go.

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A Few Basic Rules

To Get Where You Want to Go

Rule 1: Save! It’s simple. You’ll have more tomorrow if you save more today.

Rule 2: Pay Off High-Interest Debt. You’ll have LOTS more tomorrow if you do.

Rule 3: Use that 401(k). The best way to save for retirement is in a 401(k).  It’s automatic, saves on taxes, and your employer match is “free money.”

Rule 4: Have a Plan. Know where you want to be in 10 years. Make a plan to get there.

Rule 5: Keep Saving. If you reach a goal or pay off a debt, use the money “freed up” to reach another goal or pay off another debt.

Make a Plan

header-orange 1. Your Age, Income, & Marital Status    
header-small (Enter your figures in the white boxes)     
header-column  Age  Income Married? Spouse's Income
input results-small 
gap     
header-orange 2. Set Your Goals    
header-small If You're Saving for a House    
header-column  Your Goal Already saved
input results-small 
header-small If You're Saving for College    
header-column  Goal in 10 years
input results-small 
header-small A Reserve      
text  Experts suggest 2-4 months’ earnings. Two-earner families need less. High earners need more. So do those requiring more time to find a job. 
header-column 
input results-small 
header-small Retirement      
text Enter how much you've already saved & we'll estimate the % of income you need to save +  how much you'll need in 10 years to be "on-track." (See Explanations for our assumptions.)
header-column  Your savings Spouse's Savings
input results-small 
input results-small About how much you need to save 
input results-small How much you'll need in 10 years to be "on track"
gap     
header-small Now Enter What You Owe    
header-column    How Much Interest Rate
input results-small High Interest (Credit Card) Debt 
input results-small Moderate Interest (Student/Car Loan) Debt 
input results-small Low Interest (Mortgage) Debt 
gap     
header-orange 3. Get Where You Want to Be in 10 Years   
header-small Enter how much you'll save and use to pay down debts.
text We'll estimate if and when you hit a goal or pay off a debt & how much of the money used for saving and debts will be "freed up" in 10 years. 
text Unless you tell us otherwise, in Advanced below, we assume employers match your retirement saving 50%, up to 6% of earnings, and you're in the 15% tax bracket. 
text For other assumptions and methods, see Explanations, below. 
text A key assumption is that you "keep saving" – if you reach a goal or pay off a debt you use money "freed up" for another goal or debt – first for a reserve, then high-interest debt, then a house and moderate interest debt; then retirement, college, and low-interest debt. 
header-column Objective Goal Monthly Saving Savings in 10 years Year hit 
input results-small Retirement 
input results-small Reserve
input results-small House
input results-small College
input results-small Risk to Consider:  Market Tanks  
gap     
header-column Debts Owed Monthly Payment Owed in 10 years Year paid
input results-small High-interest
input results-small Moderate-interest
input results-small Low-interest
gap     
header-column Total  Dollars % of income
input results-small Before tax 
input results-small After tax deductions
input results-small Income "freed up" in 10 years
gap     
header-marker Advanced    
header-orange Employer Retirement Contributions    
text We assume you save for retirement with tax-deductible contributions to a 401(k) and get a 50%  employer match (50 cents for every dollar you contribute) up to 6% of earnings.  
text Correct if this is not the case:    
header-column     
input results-small Employer match is
of earnings
input results-small Up to 
of earnings
input results-small So your total retirement saving is  of earnings
gap     
text We assume retirement saving is tax-deductible contributions to a traditional 401(k) or IRA and Low-interest debt is mortgage debt, with tax-deductible interest making up half the payment.
text The value of the tax deduction is based on your tax bracket, the tax you pay on an additional dollar of income. 
input results-small Your tax bracket = 
 

Tools You Could Use

To Refine Your Plan & Get It Done

Want a more personalized plan? If so, here are some useful tools:

Do you need to spend less and save more?  If so, to get you on your way use:



Under the Covers

How We Make Projections & Our Disclaimer

All amounts are in today’s dollars.

Rates of Return & Interest Rates

  • Reserves and savings for a down payment are held in bank savings accounts with interest equal to the rate of inflation.
  • Educational savings are in a 529 Plan, where investment earnings are not taxed, and are invested in half in stock and half in bond mutual funds.
  • Retirement savings are held in a tax-advantaged 401(k), where contributions are deductible and the investment earnings are not taxed, and are invested in a Target Date Fund suited to your age.  (For workers under 50, that means a large share is invested in stocks).
  • Stock funds assumed to earn 6.3% and bond funds 2.2% above inflation and fees, their long-term historical average.
    • We use 2000-2009 returns as the “market tanks” returns, with stock funds losing 3.7% and bond funds earning 4.3% above inflation and fees.
  • The interest rates, unless changed in Advance, are:
    • 12% on high-interest rate debt, such as standard credit card debt.
    • 7% on moderate interest-rate debt, such as student loans.
    • 4% on low-interest rate debt, assumed to be mortgage debt, where the interest is tax deductible.

Retirement Savings Needed in 10 Years to be “On-Track”

  • We first estimate the income you’ll need to maintain your standard of living in retirement, assumed to be 75% of pre-retirement income, or the income you’ll have in your 50s.
    • We assume your income rises relative to national average wages in line with the “wage scale” developed by the Social Security Administration and that national average wages rise 0.5% a year.
  • We estimate your Social Security benefit for retirement when the primary earner is age 65, and assume a 10% cut in benefits to help close the program’s long-term financing shortfall.
  • We assume you draw the rest of your retirement income from savings, and draw out 4% of your savings as income.  So if you need 30% of pre-retirement income from savings, you’ll need 7½ times that income in savings when you retire.
  • We then the estimate the savings you’ll have at retirement from what you’ve already saved.  The rest must be provided by what you’ll save going forward.
  • We then estimate the % of income you must save to hit that target.
  • You’ll need to save less than indicated if you get a more generous employer match or if you’ll get a pension, retire later than 65, or downsize when you do.
  • You’ll also need to save less than indicated if you’ll “save more tomorrow” – say by using money freed up by paying of debts or meeting other saving objectives.

When You Hit a Savings Goal or Pay-off a Debt

  • Money “freed up” shifts to other objectives and debts in the following order,
    • First to near-term priorities: 1) Reserve.  2) High-Interest Debt.  3) Down Payment.  4) Moderate-Interest Debt.
    • Then to long-term goals: 5) Retirement.  6) Kid’s Education.  7) Low-Interest Debt.
  • Inflation assumed to be 3% a year.  As debt and debt payments don’t rise in dollar terms, they take less of your earnings over time.  The money “freed up” is used for other objectives and debts according to the priorities listed above.
  • Saving for Retirement and for your Kid’s Education stops when your savings, earning the assumed rates of return, are sufficient to hit your 10-year target.

Totals 

  • “Total Saving and Debt Payments” is after-tax, with
    • Retirement saving assumed to be tax-deductible contributions to a traditional 401(k) or IRA.
    • “Low-interest debt” assumed to be mortgage debt, with tax-deductible interest making up half the payment.
    • Your marginal tax rate – the tax you pay on an additional dollar of income – assumed to be 15%, unless you indicate otherwise in Advanced.
  • “Total Savings” ignores the fact that retirement savings and educational savings are not exactly comparable to other savings, as investment earnings are not taxed but withdrawals are.

DISCLAIMER: The information provided on the SquaredAway website is for educational purposes only.  It is not intended to provide personal financial advice.