The retirement calculator is a simplified version of the original model, and should only be regarded as one arrow in the retirement planning quiver. We say it is “simplified” because it only considers a single future time period or investment horizon – from date of retirement to life expectancy. This one period analysis does not provide for the added complexity of different scenarios or complicated retirement transitions (i.e. an individual decides to work part time in the first five years of retirement; an individual who defers Social Security benefits for a certain time period). Life expectancy depends on age, health, etc. Based on actuarial tables, females and males that reach age 65 live to age 85.5 and 82.9 respectively. However, people in good health can live well into their 90s. So, for a 50- or 60-year-old individual, the investment time horizon in retirement can be 30 to 40 years. This period is often longer than the number of working years during which an individual saved for retirement. On the other spectrum: an individual unexpectedly inherits money or sells assets like real estate that substantially increases the size of the retirement portfolio, producing more retirement income than needed. This calculator offers the addition of such entries with only crude outputs; no calculator can possibly address the myriad financial scenarios investors will face.
Despite its limitations, we believe this calculator is far more comprehensive than many others available on the market. The simple plug-and-play design of some retirement planning tools does not adjust for inflation and fails to include different assets as well as liabilities. This calculator allows individuals to input basic data, like how much they have in today’s dollars, expected needs for retirement income (also in today’s dollars), current savings and how much should be saved each year prior to retirement. Other inputs: future savings goals (including corporate retirement plans, IRAs, personal accounts and so forth), investments viewed under different legal structures, and assets subject to long-term capital gains or ordinary income taxes. One side note: A more complex retirement plan should analyze before and after-tax returns across different investment accounts. The investor might want to place more highly taxed assets in accounts that are either not taxed or taxed in the future when an individual’s tax rate might be lower. If properly analyzed, the combination of these factors will help determine the allocation of an individual’s retirement investment portfolio among low- and high-risk investments.
One of the primary reasons retirement analyses go wrong is that the projected returns from a portfolio are not in real, inflation-adjusted terms. Real returns must be used to avoid the inaccuracies of trying to predict inflation over many decades. This is why one should use an individual’s current income to judge how much will be needed to live on in retirement. Accurate retirement plans should use today’s real income and expected future portfolio returns in real terms. The other and incorrect approach uses higher nominal returns (including inflation) to project portfolio values. These nominal returns overinflate future portfolio values that then overestimate the amount of income, in today’s terms, that will be available for retirement.
For instance, many recommendations assume bond returns of 3-5% or more, which is what some bonds may yield today. But when we observe what investments have earned after inflation or in real terms over the last 75 to 100 years we see the following:
Treasury Bills: 0.5%
10 Year Government Bonds: 0.75% to 1.0%
30 Year Government Bonds: 2.0%
Equities: 7.0%
Because there is no certainty as to what inflation will be in the future, a good rule of thumb is to consider using a “real rate of return” assumption – translating future retirement numbers into today’s dollars. The Polaris Retirement Calculator does just that.
We’ve found time and time again in working with clients over the last 40 plus years, that most individuals have a very difficult time looking at their current investments or retirement nest egg and determining whether it will be enough for retirement. And if not, how much does an investor need to save to reach that goal? This retirement calculator allows individuals to input their current financial situation, estimated future savings until retirement, and project out through retirement to see whether those savings will provide enough income to ensure a comfortable lifestyle. Armed with those numbers, an individual may: 1) reevaluate and trim expected future expenses, 2) save more, 3) explore more aggressive investment plans if underfunded, 4) reduce the riskiness of the portfolio if well-positioned financially or 5) use excess assets (more than is needed for retirement) to invest on behalf of heirs. Each scenario may be prescient to a different audience. We welcome you to use the Polaris Retirement Calculator to get an initial view to your retirement picture and ultimate goals!
This blog was penned by Bernard Horn Jr., President & Portfolio Manager, in September 2021. Mr. Horn founded Polaris in April 1995 to expand his existing client base dating to the early 1980s. Mr. Horn’s pure global value philosophy combines investment technology with traditional fundamental research. His 40+ year track record exceeds most current competitors in length and has produced admirable risk-adjusted returns since inception.
Polaris Capital Management LLC is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Polaris' website provides general information regarding our business along with access to additional investment related information. Material presented is meant for informational purposes only. To the extent that you utilize any financial calculators or links in our website, you acknowledge and understand that the information provided to you should not be construed as personal investment advice from Polaris or any of its investment professionals. For additional information regarding our services, or to receive a hard copy of our firm's disclosure documents (Form ADV Part I and Form ADV Part II), contact client service. You may also obtain these disclosure documents online from the SEC Investment Adviser Public Disclosure (Firm CRD# 106278). ©2013-2025 Polaris Capital Management, LLC. All rights reserved.
IMPORTANT INFO: RETIREMENT CALCULATOR
The retirement calculator is a model or tool intended for informational and educational purposes only, and does not constitute professional, financial or investment advice. This model may be helpful in formulating your future plans, but does not constitute a complete financial plan. We strongly recommend that you seek the advice of a financial services professional who has a fiduciary relationship with you before making any type of investment or significant financial decision. We, at Polaris Capital, do not serve in this role for you. We also encourage you to review your investment strategy periodically as your financial circumstances change.
This model is provided as a rough approximation of future financial performance that you may encounter in reaching your retirement goals. The results presented by this model are hypothetical and may not reflect the actual growth of your own investments. Polaris strives to keep its information and tools accurate and up-to-date.
The information presented is based on objective analysis, but may not be the same that you find at a particular financial institution, service provider or specific product’s site. Polaris Capital and its employees are not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this tool. Polaris is not responsible for any human or mechanical errors or omissions. All content, calculations, estimates, and forecasts are presented without express or implied warranties, including, but not limited to, any implied warranties of merchantability and fitness for a particular purpose or otherwise.
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