Suppose you are twenty-six years old, and you have an annual income of $50,000. You expect to retire at age sixty-five, and you forecast market interest rates to be 4 percent at that time. You estimate you will be in retirement for thirty years, you will save 5 percent of your salary every year until retirement, you will earn 8 percent on your investments, and inflation will be 3 percent each year (in this example, we are assuming no real growth in income). You estimate that you will buy a home in four years, and you will pay $270,000 for the home with a $20,000 down payment. You will finance $250,000 of the home at 7 percent for thirty years, and you will pay $500 per month in property taxes and insurance. You will pay off the home in thirty years, and the home’s value will grow at 3 percent, consistent with inflation.

Age at beginning of employment	26
Starting Income	$50,000
Average annual increase in income	3.0%
Age at retirement	65
Estimated market rates at retirement	4%
Years in retirement	30
Annual percent of salary saved	10%
Return on investment	8.0%
Assumed inflation rate	3.0%

Age when you will purchase a home	30
Cost of the home	270,000
Down payment	20,000
Mortgage amount	$250,000
Taxes and insurance ($250 per month)	3,000
Mortgage interest rate	7.0%
Mortgage term	30
Years to pay off loan	30
Assumed growth in home prices	3.0%

Based on the above information, the Learning Tool gives the following information: the first column shows your age, the second and third columns show the savings and debt ratios (.59 = 59 percent) recommended by this Learning Tool, and columns four and five show the savings and debt ratios recommended by the Wall Street Journal article.

Estimated Savings and Debt to Income Ratios                                                            

Age	Savings	Debt
25
30	0.59
35	1.34	3.79
40	2.29	3.06
45	3.50	2.37
50	5.03	1.73
55	6.97	1.11
60	9.43	0.50
65	12.54

Article-Recommended Ratios

Savings	Debt
0.10	1.70
0.90	1.50
1.80	1.25
3.00	1.00
4.50	0.75
6.50	0.50
8.90	0.20
12.00

	Retirement	Annuity Payment	5% Payout
Total savings	$1,985,902	$114,845	$99,295
Savings to income / % of salary	12.54%	73%	63%
Total inflation adjusted savings	$959,082	$37,005	$47,954
Savings to income / % of salary	6.06%	76%	99%

The benefit of this spreadsheet is that is gives you an idea of where you are in your retirement planning process. If you had input the information in the previous chart, and you had noticed that the 5 percent payout was only 64 percent of your income, you might have decided you needed a higher percentage. By changing the amount saved, you can see how increasing your savings will lead to an increase in the annual amount available for retirement. For example, by increasing your savings from 10 percent to 15 percent, the 5 percent payout amount increases from 64 percent of your income at retirement to 94 percent of your income at retirement. If you want to receive a payout of 100 percent of income, you can adjust the savings percentage to give you 100 percent of salary at retirement by increasing your savings percentage to 16 percent.

Monitoring your progress towards retirement is an important, but challenging, responsibility. Nevertheless, this responsibility must be assumed if you are to achieve your financial goals and retire in a manner that you desire.