Learn to Use IRA Calculators

Answer 1

One of the most important aspects of being financially responsible is properly preparing for retirement. Properly preparing for retirement takes your entire working career to accomplish, but will allow you to live your life as you wish when you get older. One of the most popular retirement savings tools is an IRA. An IRA requires after tax contributions but allows funds to grow tax free and does not require taxes when you withdraw upon your retirement age. To understand how much you will need to save during your career, you will need to use an IRA calculator.

An IRA calculator is a device that will calculate how much you will have in your IRA account based on several different inputs. The calculator can also calculate how much you need to save each year in order to reach your retirement goals. To use a retirement calculator, the first and most important step is to understand how much money you need to retire comfortably.

To figure out how much you need to retire comfortably, you first need to consider how much money you will need to live off of each year. Most retirement experts suggest making this 90% of your income. Since IRA withdrawals are not taxed, this number should be a net income figure. So, if you earn $80,000 per year after taxes, you will need $72,000 per year in retirement (adjusted for inflation). Financial experts then suggest that you have 20 to 25 years worth of savings in your retirement account upon retirement. Based on the example from above, you will need between $1.4 million and $1.8 million in your account.

Once you know what you need to have saved, you can better use the IRA calculator, which will let you know how much you need to save each year. To use the IRA calculator, you will also need to input the average rate of return you expect to earn and how long it will be before you retire. For realistic estimate, you should assume a retirement age of 65 and a rate of return of around 7%. After inputting all of the information into the IRA retirement calculator, you will be told how much you need to save each year.