Retirement Gap & FIRE Calculator

Understanding the Retirement Gap Calculator

A retirement gap analysis is a crucial exercise to determine if you are on track to meet your long-term financial goals. This calculator helps you compare your projected retirement savings with the amount you will likely need, highlighting any potential shortfall (a "gap") or surplus. It is also a fundamental tool for those pursuing Financial Independence, Retire Early (FIRE).

How It Works

The calculator performs two main calculations:

1. Projected Savings: It forecasts the future value of your current savings and future contributions using the power of compound interest, based on your expected annual return and years until retirement.
2. Needed Savings: It estimates the total portfolio size you'll need to support your desired lifestyle in retirement. This is done using the "4% Rule," a common guideline which states that you can safely withdraw 4% of your portfolio's value each year. Therefore, your needed savings goal is your desired annual income multiplied by 25.

Interpreting the Results

The final result is the difference between your projected savings and your needed savings. A positive number indicates a projected surplus, meaning you are on track or ahead of schedule. A negative number indicates a projected shortfall or "gap," signaling that you may need to increase your savings rate, adjust your investment strategy, or reconsider your retirement age or income goals to get back on track.

Frequently Asked Questions