On the Web
February 28, 2013
The IRA Tax Deduction Beckons
At tax time, many Americans think, often fleetingly, about spending less and socking away more for retirement.
Until April 15, the IRS permits people who do not have a pension plan at work to deduct up to $6,000 for money placed in an IRA; taxpayers who do have an employer pension can also receive the IRA deduction if their earnings fall under the IRS’ income limits.
The tough question that trips people up is: How much will I need?
The easy way to think about this is in terms of the income necessary to maintain your current standard of living after the paychecks stop coming in. Click here for a tool that estimates both how much you’ll need and how much you’ll have if you continue on your current path.
The calculator, created by the Center for Retirement Research, which supports this blog, was designed for people over 50 and on the retirement runway. Younger people can also get a ballpark idea of how they’re doing using the calculator. Or click here for the percent of your wages to put into a tax-deferred retirement fund.
This is a beta website with a few kinks, and it works smoothly only on the Safari and Google Chrome browsers. But the results are sound and backed by academic research. Here’s how to read the results:
The first screen shows the targeted income you’ll need in retirement to maintain your lifestyle – about 75 percent of your current income. It then adds up the income you can anticipate from various sources once you retire: your pension plan at work, your 401(k) savings, and your Social Security benefit. This is based on the retirement age you select.
The second screen will tell you whether you’ll have a surplus or shortfall if you keep doing what you’re doing. The third screen quantifies how much you can improve your prospects by working longer, spending less to ease into retirement, or downsizing your house.
So, are you doing enough? If not, try the calculator.
Only functions on Chrome or Safari???? Thought you were being clever…not very user (aka consumer) friendly. Fix it!!!!
The new post and calculator look great. Keep up the great work.
I just used your calculator at: http://squaredaway.bc.edu/calculators/target-your-retirement. Thanks for developing it. I notice it is labeled as a beta version so I have some feedback for you. My amount of savings at retirement was shown to be much less than what I have already saved. I can’t figure out what happened except that the number looked a lot like what my calculations show except missing a zero. Could it be that it dropped a trailing zero for an amount over $1 million?
In response to Mike’s comment, Steve Sass, who created the tool here at the Center, responded:
“We have identified bugs in 1) the treatment of retirement ages over age 70, and 2) the treatment of employer pensions.
There are also problems with two figures in the plan “summary” on Screen 4:
1. The estimate of your retirement income on the upper left side of the screen is the correct figure – but not the other estimate that appears on Screen 4.
2. ‘Your Estimated Savings at Retirement’ is incorrect.
These bugs will be fixed in the revised version of the calculator. Please report any other bugs you discover!”
The bugs don’t appear to me. Useful tools! Thanks.