Source: Schwab Center for Financial Research

The underlying calculations use forward-looking Capital Market Expectations (CMEs). An income range between $50,000 and $300,000 was used to test different effects on the multiplier rate. Income is assumed to steadily increase with inflation at 2.27% annually. Retirement saving is assumed to begin at age 25 and end at age 66. From our research, the target savings rate is used as an assumption—based on an estimated range of 11% to 16% of annual income including employer matched contributions—and represents what someone would need to contribute to the portfolio from age 25 to 66.

Retirement is assumed to last 30 years. Initial retirement income withdrawal is based on needing 50% to 70% of the current income determined by reducing the current annual income by the target savings rate and hypothetical Social Security benefit amount at full retirement age taken at age 66 for the income range tested. Retirement portfolio income is based on a sustainable, initial withdrawal rate calculated by simulating 1,000 random scenarios using a 75% probability of success. Probability of success is calculated as the percentage of times where the portfolio’s ending balance was greater than $0. Portfolio follows an age-based glidepath during the savings period, ending with a moderate portfolio. The initial withdrawal amount, in dollars, is increased by an annual inflation rate of 2.27%.