The value of your savings can be affected by both inflation and taxes. While there is
nothing you can do about inflation – except be aware of it – you can help reduce
your current tax burden by taking maximum advantage of tax-deferred investments.
A tax deferral means exactly that – you are deferring or postponing paying income
taxes on the money you contribute to an annuity or 403(b) plan until sometime in the future,
such as when you actually retire. Meanwhile, the value of your investments can increase
substantially. How substantially? That depends.
Use this calculator to determine how much your retirement savings can be worth with these
two important variables in mind. Click View Report to get more information and a year-by-year
savings schedule.
Definitions
Years
The number of years you have to save.
Monthly contributions
The amount you will contribute each month to your savings. This calculator
assumes that you make your contribution at the beginning of each month.
Amount currently invested
Total you have saved to date to be included in this analysis.
Expected rate of return
This is the annually compounded rate of return you expect from your
investments before taxes. The actual rate of return is largely dependent on
the type of investments you select. From January 1970 to December 2006, the
average compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 11.5 percent per year (source:
www.standardandpoors.com). During this period, the highest 12-month return
was 61 percent, and the lowest was -39 percent. Savings accounts at a bank
pay as little as 1 percent or less.
It is important to remember that future rates of return can't be
predicted with certainty and that investments that pay higher rates of
return are subject to higher risk and volatility. The actual rate of return
on investments can vary widely over time, especially for long-term
investments. This includes the potential loss of principal on your
investment. It is not possible to invest directly in an index, and the
compounded rate of return noted above does not reflect additional sales
charges and fees that funds may charge.
Expected inflation rate
What you expect for the average long-term inflation rate. A common measure
of inflation in the U.S. is the Consumer Price Index (CPI), which has a
long-term average of 3.1% annually, from 1925 through 2006.
Information and interactive calculators are made available to you as
self-help tools for your independent use and are not intended to provide investment advice. We
can not and do not guarantee their applicability or accuracy in regards to your individual
circumstances. All examples are hypothetical and are for illustrative purposes. We encourage
you to seek personalized advice from qualified professionals regarding all personal finance
issues.
Note: The above information is not intended or written to be used as
legal or tax advice. It was written solely to support the sale of annuity products. As a
taxpayer, you cannot use it for the purposes of avoiding penalties that may be imposed under
the tax laws. You should seek advice on legal or tax questions based on your particular
circumstances from an independent attorney or tax advisor.
