How to use this calculator
- Current age and retirement age set how many years your portfolio has to grow.
- Current portfolio is what you have invested today.
- Monthly contribution is what you add each month until you retire.
- Portfolio yield is the average dividend yield of what you hold.
- Dividend growth and price growth are the yearly rates you expect.
- Desired yearly income is what you want to live on, priced as if you retired today.
- Inflation is how fast you expect prices to rise. The Federal Reserve aims for 2% a year over time.
The formula
Three pieces come together:
Years = Retirement age − Current age
Goal in future dollars = Goal today × (1 + Inflation)Years
Income in today’s dollars = Future income ÷ (1 + Inflation)Years
Future income comes from a month-by-month projection. Each month your contribution goes in and share prices rise a little. Dividends arrive four times a year and are reinvested. Once a year, the dividend gets its raise. At your retirement age, the calculator takes the yearly dividend rate: what your holdings would pay over the next twelve months.
If you come up short, it tries different monthly contributions, halving the range each time, until it finds the smallest one that reaches the goal. That is the “monthly saving to close the gap”.
Worked example
With the starting numbers, you are 35 and plan to retire at 65: 30 years away. You have $100,000 invested at a 3.5% yield and add $1,000 a month.
- Today the portfolio pays $3,500 a year.
- The goal is $60,000 a year in today’s money. With 2.5% inflation for 30 years, that becomes $60,000 × 1.02530 = $125,854.05.
- By age 65, with dividends reinvested, the portfolio is worth $2,787,461 and pays $92,915.35 a year.
- In today’s dollars that income is $92,915.35 ÷ 1.02530 = $44,296.71.
- You are short by $60,000 − $44,296.71 = $15,703.29 a year in today’s dollars.
- Raising the monthly contribution to $1,619.24 would reach the goal.
Why inflation matters so much
Thirty years is a long time for prices. At 2.5% a year, things cost about twice as much by the end. A plan that ignores inflation can look finished on paper and still leave you short. That is why this calculator shows your income both ways: the dollar amount you would actually receive, and what it would buy today.
Dividend growth is your defense. If your dividends grow faster than inflation, each year your income buys a little more. With the starting numbers, dividends grow 5% while prices rise 2.5%, so the green line pulls away from the dashed goal line over time, even though it starts far below it.
The early years and the late years
Look at the chart: almost nothing seems to happen for the first ten years, then the line bends upward. That bend is reinvested dividends and dividend raises compounding on top of each other. It also means the years closest to retirement do the most work, so stopping contributions early, or a few years of poor returns just before you retire, can move the result a lot. Try a retirement age a few years later and see how much the income changes.
Tip: run the numbers with a lower growth rate, too. If the plan only works with every assumption going your way, it is worth building in some room.
What this calculator leaves out
Taxes, fees, Social Security and pensions aren’t included, and growth is smooth and steady. Real dividends can be cut and real markets fall. For a goal without a retirement date, use the Dividend Income Goal Calculator. To see the year-by-year growth in dollars, try the Compound Dividend Calculator.