T. Rowe Price Introduces Enhanced Online Retirement Income Calculator For Those in Any Stage of Retirement Planning

Friday, September 26, 2008 General News
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BALTIMORE, Sept. 25 T. Rowe Price(Nasdaq: TROW) has introduced a new retirement planning tool on its web sitethat enables those planning for, transitioning to, or in retirement toestimate their monthly retirement income with inflation adjustments.

(Photo: http://www.newscom.com/cgi-bin/prnh/20080925/NETH049 )

Moreover, the interactive tool enables users to immediately see the impacton retirement income of changing various factors, such as the amount beingsaved, retirement age, number of years in retirement, asset allocationstrategy, and, for retirees, the monthly amount they expect to spend.

The new Retirement Income Calculator (http://www.troweprice.com/ric) isfar more robust than the web-based tool it replaces. Although the priorretirement planning tool was aimed only at those in or near retirement, it hadbeen the most popular tool on the firm's web site.

The new tool calculates a projected monthly income stream throughoutretirement for those in any phase of retirement planning, taking into accountsuch factors as current savings, future savings in employer-sponsoredretirement plans, as well as other tax-deferred and tax-exempt retirementaccounts, and regular taxable accounts, Social Security and other sources ofincome, the expected number of years in retirement, and investment strategybefore and after retirement. For couples, the calculator accommodates suchdata for each spouse.

Like its predecessor, the new Retirement Income Calculator alsoincorporates the firm's proprietary "Monte Carlo" methodology, providingpersonalized results based on 1,000 potential market simulations, assuming acertain probability that income will be sustained throughout the retirementperiod. This approach provides a more realistic and reliable estimate thansimply projecting results based on an assumed average rate of return on aninvestment portfolio.

"The calculator is designed to provide users with maximum flexibility todetermine if their current plans are on track to meet their financial needsduring retirement," says Christine Fahlund, a T. Rowe Price senior financialplanner. "And if their projected income in retirement falls short of what T.Rowe Price thinks is a reasonable goal from investments and Social Security(e.g., replacing 70% of pre-retirement income), investors can easily revisetheir assumptions and immediately see the impact on their results. By enablingusers to see these tradeoffs, such as when to retire, how much to save, or howmuch to spend, the calculator is a helpful learning tool for retirementplanning as well."

Planning for Retirement

For example, consider John and Mary Smith, a hypothetical 40-year-oldcouple that has already saved $300,000 for retirement and has a combinedincome of $180,000 annually. Together, they are investing 7% of their salariesin their employers' 401(k) plans. In addition, each invests $4,000 a year in atraditional Individual Retirement Account (IRA). Prior to retirement, thecouple's portfolio is invested 80% in stocks and 20% in bonds. Afterretirement, they expect to become more conservative with 60% in stocks, 30% inbonds, and 10% in short-term fixed income securities. They plan to retire atage 62.

As reflected in the summary table provided by the calculator, theirinvestments, along with Social Security income, could provide them with amonthly income of $7,654 in today's dollars, assuming a seven in tenprobability that they will still have money in their portfolio at age 95.

However, they would need $10,500 to replace 70% of their pre-retirementincome from their investments and Social Security combined, a gap of $2,846 amonth. The calculator advises that they could close that gap by investing anadditional $2,126 a month between now and retirement.

Alternatively, if they maintain their current savings rate but work until65 instead of 62, their project

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