Am I on the Right Track?

A lot of people ask themselves that question every day. For retirement plans, it's an extremely confusing question for anyone, much less someone at the beginning of their careers (like me). I decided to test two web calculators to see if they were any more confident than I was in my own predictions (which say my retirement kitty will crap out in 20 years using current projections).

I used the "Where am I heading?" calculator from Alliance Bernstein to estimate how much I will have to live on in my retirement given constant savings rate. Right now, I am putting away 7% of my salary to a 401(k), which gets me to 10% of my salary including company match.

Alliance Bernstein estimates a 2% cost of living adjustment in retirement and estimates future inflation using a series of 10,000 simulations to pick the most likely rate over the rest of your working career (40 years in my case).

The calculator estimates that I will be able to replace my current salary (the results are calculated in today's dollars) and have an 85% chance that my money will outlive me. This assumes I retire at age 65 and live for another 30 years. If I can up my contributions by one percent per year, it will mean an extra $4,000 in income per year.

Next, I used the online Social Security calculator from the Social Security Administration. While I assume in my own calculations that Social Security will not be available when I retire, it is a useful tool for those that are closer to retirement. If I take Social Security at age 67 (when I will be eligible), I will receive $19,116 annually in today's dollars as my SSA benefit. If I hold off until age 70 to take benefits, I will receive $23,712 annually in today's dollars. Like I said, this will be found money for me if SSA benefits are available in retirement.

I am okay with these calculations. Like I said, my own shows I am in a little more trouble, but I expect (possibly foolishly) to increase not only my income but also my contribution percentage faster than my current calculations show. Plus, my wife is a teacher and will have generous benefits of her own in retirement (I ignored her salary in all this). Overall, I think we're okay (it doesn't keep me up at night), but I think we could do better. Later, I will discuss the model that I currently use to calculate my retirement.