Do you have a plan for generating retirement income? Do you have any idea how much retirement income you can expect to generate from your existing retirement investments? There are at least two fast and easy ways to make this prediction. (And forget the outdated and discredited “4% rule.”)
If you are between the ages of 55 and 64, my first recommendation is to use the CoRI retirement index tool provided by Blackrock. The CoRI Index calculates and provides a number (adjusted daily) that can be used to estimate the annual retirement income your current retirement savings could generate when you retire at age 65.
Stated another way, the CoRI Index number helps you estimate how much savings and investments you need today to generate a dollar of future, cost-of-living adjusted annual lifetime income starting at age 65. For example, today’s CoRI index for my age (63) is $19.17. This means that for every dollar of annual retirement income I want at age 65 (excluding pension and Social Security income), I should have $19.17 saved today.
As a 63 year old, if I want to generate $40,000 in retirement income at age 65 from my savings and investments, I need to have saved $766,800 today.
Note that this is a “cost of living adjusted” income estimate, which makes the CoRI index and tool even more helpful.
To read more about the CoRI indexes, go here.
In addition to providing the CoRI indexes, Blackrock publishes an online calculator that predicts your retirement income based on the CoRI index for your current age and the current size of your retirement nest egg. Add up the current values of your 401(k) account balances, 403(b) account balances, IRA account balances, savings account balances, and CD, etc. After adjusting the age slider, plug that total into the CoRI tool and your retirement income prediction is immediately displayed.
When I used the CoRI retirement income prediction tool using my data, the result was reasonably close to what the more complex Financial Engines tool provided. This makes me believe that the CoRI tool is using sound reasoning and logic.
Here is link to the CoRI retirement income prediction tool.
If you like using this tool, keep in mind that you should check your retirement income prediction regularly because the index changes based on current interest rates, inflation expectations, life expectancy and other factors.
A second fast and easy way to predict your retirement income is to hypothetically purchase a deferred annuity using all of your current retirement assets. You can do this using a deferred annuity calculator, such as the one available here. For example, assume you are age 63 and want to begin collecting your retirement income at age 65. You enter your age, gender, state of residence, and income start date (2 years). If you have approximately $550k in retirement savings now (that you would use to purchase the deferred annuity), you can expect to receive a lifetime annuity income of $40,000/year beginning at age 65.
Note the difference of approximately $225,000 in the savings needed to generate the same $40,000 in retirement income using the CoRI and annuity tools. There are two important reasons why the annuity result is so much lower. First, the annuity income is not inflation adjusted. (You can purchase inflation-adjusted annuities but they are much more expensive.) Second, with the typical income annuity you lose access to the amount invested. If you die early, this is a benefit to the insurance company which makes the costs lower for everyone.
Give these tools a try as a fast and easy way to predict your retirement income. Are you on track?