Now that you know how much income your 401(k) balance must produce for you, your next step is to figure out how much you'll need to have saved and accumulated that will generate that amount of income.

The best place to do that is at www.banksite.com (click to open in a new window). Banksite's Simple Retirement Calculator will ask how much money you need a year, for how long you'll need it, what you expect to earn on your money and assumed rate of inflation. It will then tell you exactly how much you need, and will show you year by year how much is earned, how much is withdrawn and how much is left, until both principal and interest are consumed.

Fill in the blanks to determine how much you'll need to retire:

• For "Annual Income Required", enter the amount you'll still need, the balance not covered by Social Security or pensions.
• For "Number of years until retirement", enter zero. That's not because you're going to retire this year; enter a zero to get your answer in today's dollars.
• "Number of years required after retirement" is another way of asking how long you think you'll live. True, you certainly don't know, but many planners suggest that you plan on living until your early 90's. You don't want to outlive your money - old and broke is a terrible place to be. You may have as many as 25 years in retirement, from age 67 to 92.
• You must also make an assumption for "Annual Inflation". The inflation rate has averaged 3.1% for the last 50 years, but you may enter something slightly higher to be safe, like 3.5%.
• The "Annual Yield on Balance" asks you to enter the interest rate you think you'll likely earn on your money after you retire. Again, I'll recommend making a conservative estimate, like 6%. You might get a better return, of course, but for planning purposes it's better to play it safe so you don't undershoot your goal.
• Then click the "Calculate" button and get your results.

Emily will enter her information into the calculator. She'll need another $14,376 in annual income over her Social Security benefit. She'll enter "0" in years to retirement, "25" years after retirement, "3.5" annual inflation percentage, and "6" percent annual yield, and click "Calculate".

The calculator tells Emily that she will need $278,903.33 accumulated to get the amount of interest she'll need to earn every year for the next 25 years. The table shows the beginning balance, the amount withdrawn, how much interest is earned, and the balance at the end of each year, until year 25 when the principal and interest are exhausted. Notice the amount withdrawn increases every year to account for inflation.

Now Emily knows her minimum retirement goal. Now that she knows the process, she can also change some scenarios. What if her Social Security benefit isn't as much as promised? She knows how to back it out of the equation. If she wants to retire early, that just means more years in retirement, so she can change what she types into the calculator.

And now you know your minimum retirement goal. Now you have a dollar amount to shoot for, which you achieve by a combination of your 401(k) and IRA contributions, your employer's matching funds, and the compounded return on your investments.

And there are many other Websites available to help you create a portfolio to maximize return while minimizing risk, let you know if you're on track to meet your target, help you objectively evaluate your investment choices, show you the benefit of dollar cost averaging, and help you maintain your portfolio to stay on track.

If you'd like to learn how to put the Web to work for you or for your employees, please call me at 480-332-7562, or email richard AT 401kseminar.com.