Detailed Calculation Logic & Methodology
The Beacon Retirement Calculator is a sophisticated financial planning tool that projects your retirement accounts and income streams over decades. It simulates year-by-year account growth, tax-aware withdrawals, income sources (salary, Social Security, pensions, other income), and required minimum distributions (RMDs).
The calculator employs several advanced techniques to ensure realistic projections:
The Monte Carlo feature runs thousands of simulations with randomized market returns to provide a probabilistic view of retirement outcomes. This helps you understand not just the "expected" outcome, but the full range of possibilities.
The simulation provides comprehensive statistics to assess plan viability:
For each year from your current age through your plan horizon, the calculator performs these steps:
The calculator applies different rates of return based on your life stage and glide path settings:
The glide path feature automatically reduces investment risk as you approach and progress through retirement. You can configure when the glide path begins (default: retirement age), how long it lasts, what rate of return it reaches at the end (floor rate), and the shape of the transition curve.
The linear glide path provides a steady, predictable reduction in returns:
Example: Starting at age 50 with 7% base rate, 4% floor rate, and 20-year duration:
The sigmoid curve provides a more natural transition that mirrors how many investors actually de-risk: slower changes initially and at the end, with faster adjustment in the middle years. This S-shaped curve is mathematically defined as:
Sigmoid Example: Same parameters as above but with sigmoid curve (steepness=10):
The steepness parameter (valid range: 2-50) controls how quickly the sigmoid transition occurs:
When running Monte Carlo simulations, the glide path can be optionally applied to both returns and volatility. If enabled in Monte Carlo settings:
If enabled, simulates a 15% market crash in the first year of retirement (age = RetirementAge + 1). This tests the robustness of your plan against the #1 reason retirement plans fail: poor returns early in retirement when you begin withdrawals.
The calculator offers a "Maximize 401(k) Contributions" toggle that automatically sets your employee contributions to the IRS annual limits. For 2026, the employee contribution limit is $24,500, with an additional $7,500 catch-up contribution available for those age 50 or older, bringing the total employee limit to $32,000. The overall 401(k) contribution limit (including employer match) is $72,000 for 2026. Note that these IRS limits may change in future years.
When the maximize toggle is enabled, the calculator automatically allocates 100% of your employee contributions to the Roth 401(k) option for maximum tax-free growth potential. The contribution amount adjusts annually based on the inflation rate to account for IRS limit increases. Employer match contributions are calculated separately and are not affected by the maximize toggle.
For users who want detailed analysis of their contribution strategy, the calculator includes a separate 401(k) Contribution Optimizer tool (accessible from the main menu). This optional planning tool provides per-paycheck breakdowns showing exactly when you'll reach IRS limits during the year, helps you determine optimal contribution percentages to maximize company match, and supports various pay frequencies (weekly, bi-weekly, semi-monthly, monthly). The Optimizer is particularly useful for planning mega backdoor Roth strategies and understanding how after-tax contributions fit within the total contribution limits.
When not using the maximize toggle, your 401(k) contributions are calculated as a percentage of your gross annual salary. Both Pre-Tax and Roth contribution percentages apply to your full gross pay, not to amounts after other deductions. This means a 10% Pre-Tax contribution on a $100,000 salary results in $10,000 contributed to your Pre-Tax 401(k), regardless of taxes or other deductions.
The calculator follows the standard payroll flow to determine how much cash you have available for expenses and additional savings:
Important: Both Pre-Tax and Roth 401(k) contribution percentages are applied to your gross salary. Pre-Tax contributions reduce your taxable income before taxes are calculated, while Roth contributions are taken from after-tax dollars (reducing your net pay but not your taxable income for the current year).
The resulting Net Pay is deposited into your Cash Management account each year, where it's available to cover your annual expenses. Any surplus cash (Net Pay minus Annual Expenses) accumulates in the Cash account during working years and becomes available for retirement spending or transfer to brokerage.
To help your retirement savings keep pace with rising costs, the calculator can automatically increase your annual contributions to Traditional IRA, Roth IRA, and Brokerage accounts based on the inflation rate. Each account type has an "Increase by Inflation Rate" toggle that, when enabled, compounds your contribution amount year over year.
When inflation adjustment is enabled, each year's contribution equals the previous year's contribution multiplied by (1 + inflation rate). For example, if you're contributing $7,500 annually to a Roth IRA with a 2.5% inflation rate, your contributions would grow to $7,688 in year 2, $7,880 in year 3, and $8,290 by year 5. This helps maintain the purchasing power of your savings over decades of accumulation.
The inflation adjustment applies to IRA, Roth IRA, and Brokerage contributions. 401(k) contributions (when using the maximize toggle) are already adjusted for inflation as the IRS limits typically increase each year. When not maximizing, 401(k) contributions are based on a percentage of your salary, which already grows with your annual raise percentage.
Unlike 401(k) contributions which are deducted directly from your paycheck, contributions to Traditional IRA, Roth IRA, and Brokerage accounts are made from your available cash after all other obligations are met. The calculator automatically ensures you never contribute more than you can afford based on your actual cash flow.
Each year during your working years, the calculator follows this sequence:
Automatic Contribution Capping: If you configure total contributions (IRA + Roth IRA + Brokerage) that exceed your available funds after expenses, the calculator automatically caps each contribution to prevent overspending. Contributions are applied in the order listed above, so if you have $30,000 available and configure $15,000 IRA + $10,000 Roth IRA + $10,000 Brokerage, you'll get the full $15,000 to IRA, full $10,000 to Roth IRA, and only $5,000 to Brokerage (the remainder of what's available).
| Account Type | Growth Formula | Contribution Conditions |
|---|---|---|
| 401(k) Pre-Tax | Balance Γ (1 + Rate) + Annual Contribution | While working: Employee Pre-Tax % + Employer Match. If "Maximize" enabled, employee contribution goes to Roth instead. |
| 401(k) Roth | Balance Γ (1 + Rate) + Annual Contribution | While working: Employee Roth %. When "Maximize 401(k)" is enabled, receives full IRS limit ($24,500 + $7,500 catch-up if age 50+), adjusted annually for inflation. |
| 401(k) After-Tax | Balance Γ (1 + Rate) | While working: No direct contributions (mega backdoor Roth) |
| Traditional IRA | Balance Γ (1 + Rate) + Annual Contribution | While working: Configured annual amount. Optional: increase annually by inflation rate to maintain purchasing power. |
| Roth IRA | Balance Γ (1 + Rate) + Annual Contribution | While working: Configured annual amount. Optional: increase annually by inflation rate to maintain purchasing power. |
| Brokerage | Balance Γ (1 + Rate) + Surplus Cash | While working: Configured annual amount + reinvested surplus. Optional: increase contribution annually by inflation rate. |
| Cash Management | Balance Γ (1 + Savings Rate) + (Net Salary - Expenses) | Net salary contributions minus expenses (if working) |
When you reach your Retirement Age, the calculator performs a "rollover" of your 401(k) accounts:
This transition assumes you're leaving your employer and consolidating retirement savings into IRAs (a common practice for better control and lower fees).
Track additional income sources such as rental properties, royalties, dividends, or side businesses that continue both before and after retirement:
RMDs begin at age 73 for those born 1951β1959, or age 75 for those born 1960 and later.
The calculator uses the IRS Uniform Lifetime Table to determine the divisor:
RMD distributions are subject to income tax. The calculator applies an estimated 22% effective tax rate:
The net RMD amount is deposited directly into your Cash Management account, where it becomes available for immediate spending. The IRA balance is reduced by the full RMD amount. This cash deposit is then used in the withdrawal logic (Step 5) before tapping other accounts.
After calculating RMD, the calculator estimates your taxable income to determine if your Social Security benefits are taxable:
The taxable portion is multiplied by the 22% tax rate to reduce your net Social Security income.
In retirement, the calculator determines if additional withdrawals are needed beyond fixed income (Social Security and pension). Critically, RMD income is NOT included in the withdrawal need calculationβit's already been deposited to cash in Step 4 and is available for spending.
Note: RMD is excluded from this calculation because it has already been deposited to cash and is available to cover expenses through cash withdrawals.
When fixed income doesn't cover expenses, the calculator draws from accounts in this tax-efficient order:
Suppose you have $100,000 in expenses, $50,000 in fixed income (net SS + pension), and a $25,000 net RMD deposited to cash:
| Step | Action |
|---|---|
| 1. Calculate Need | Withdrawal Need = $100,000 expenses - $50,000 fixed income = $50,000 |
| 2. Cash ($25,000 from RMD + $10,000 prior) | Withdraw $35,000 (no tax). Remaining need: $15,000. Cash balance: $0 |
| 3. Brokerage ($60,000) | Need gross of $15,000 Γ· 0.925 = $16,216. Withdraw $16,216. Net after 7.5% tax: $15,000. Remaining need: $0 |
This order minimizes lifetime taxes by using cash (which holds the net RMD) first, followed by low-tax brokerage, then deferring high-tax IRA withdrawals as long as possible.
During your working years, cash accumulates from salary after expenses. The calculator does NOT automatically transfer surplus to brokerage during working yearsβcash builds up for retirement liquidity.
In retirement, if your total income (fixed income plus net RMD) exceeds annual expenses, the surplus remains in cash. To prevent "cash drag" (excessive low-yield cash reducing returns), the calculator automatically transfers surplus to brokerage for growth:
Suppose at age 75:
For each year, the calculator records:
| Metric | Description |
|---|---|
| Age | Your age in that year |
| Year | Calendar year (Birth Year + Age - Current Age) |
| Account Balances | IRA, Roth IRA, 401(k) Pre-Tax/Roth, Brokerage, Cash Management, and Total |
| Salary | Gross annual salary (pre-retirement only) |
| Income Sources | Social Security, Pension, Total (after taxes) |
| Expenses | Annual living expenses (after mortgage payoff, if applicable) |
| RMD | Required Minimum Distribution (if applicable) |
| SurplusToBrokerage | Amount transferred from cash to brokerage due to income exceeding expenses (retirement years only) |
| Contributions | 401(k) pre-tax and Roth contributions (while working) |
| Investment Gains | Dollar gains on 401(k) accounts from investment returns |
| Is Retirement Year | Flag indicating your first year of retirement |
The calculator offers three input panel modes to optimize screen space:
Panel mode preference is automatically saved to browser local storage.
Results cards (Total Assets Chart, Detailed Results, Monte Carlo Analysis) can be reordered via drag-and-drop. Your preferred order is saved automatically and restored on each visit.
Toggle between light and dark themes using the menu. Your preference is saved across all pages and sessions.