Retirement calculators might not be the complete answer to figuring out how to make ends meet in retirement but at least they give you are good starting point.
Trying to figure out what you will need in retirement saving is like looking into a cloudy crystal ball. Interest rates are down on your investments, prices are up (which is normal, but especially unpredictable these days), Social Security “scares” abound and there is less certainty about how long you will live after retirement as people get healthier and live longer and longer (which is a good thing, right?).
Still, it is important to save and spend wisely and to consider as many variables as you can in your retirement planning to ensure your later years are as pleasant as possible. And it is very important to try to arrive at some target figures for what you need to set aside. The hardest thing to do is “wing it” and hope you have enough – because you probably won’t.
Consulting A Financial Advisor
Personally consulting with a financial advisor who can ask questions and make suggestions is one way to estimate your needs. Another way is to use one of the many interactive retirement calculators available on-line; and for those who are not comfortable with internet, retirement calculators also come in paper worksheet and reference table form.
There is a wide variety of financial calculators available on-line, but many have come under criticism for flaws, biases and inaccuracies. Free online calculators tend to be too general and make one-dimensional assumptions about the myriad factors and variables that can affect your retirement needs.
Retirement calculators on-line posted by financial advisors, brokerage firms, and other investment vehicle businesses tend to undervalue some of your assets and overestimate what you will need in your investment portfolio. They are interested in selling you their products and services.
Important, but often overlooked or miscalculated, factors include social security projections, assumptions regarding rates of return, life expectancy, housing and other cost of living assumptions, and the affect of having a spouse or outliving your spouse.
How Much Do I Need To Retire?
So, what’s a person to do? Use more than one retirement calculator. The Social Security Administration’s website at www.ssa.gov can give you free personalized benefit information based on what your work history has been to date, so you can estimate how what you can probably expect in social security will count toward your total retirement package.
Consult calculators that either give you a choice on expected rates of return on your investments over the long haul, or use two different rate-assumed calculators with different rates; keep in mind that long-term rates for stocks, after correcting for inflation, are 6.8% and that more conservative investments run less, so run something around 4% and something around 10% for comparative values in aggressive and conservative scenarios.
Calculating Cost Of Retirement Living
Cost of living in your retirement years are also tough to deal with. Housing considerations are very difficult to predict, especially when you are far away from retirement. Calculating need based on housing costs must consider whether you will have a mortgage, own your home outright, or rent.
A calculator at the U.S. Department of Labor lets you figure in home equity when running your numbers. Other than that, you will need to consider monthly payments of whatever type and may want to run several scenarios regarding housing cost. This is one area in which your retirement dreams may be very important; so, you may want to think about where and how you want to live later in life.
Impact From Inflation
Inflation, too, is difficult to predict. Some calculators don’t even deal with it. However, think in terms of generalities; among calculators that do account for inflation, they use rates on ranging from 2.3% to 4.6%.
Life expectancies for yourself and your spouse are the most difficult to consider and the most difficult to predict. Some calculators use very general actuarial tables, but fail to account for life expectancy factors like gender, race and income. Also, if you have a spouse, the probability that one of you will live longer than average is considerable.
Check out websites that will help you predict life expectancies and then run numbers for yourself and your spouse, together and separately, so you can plan for many scenarios.
Retirement calculators are not perfect, because your future circumstances are not guaranteed, however, whether you are using retirement calculators to chart your own course, or as a prelude to hiring financial planners or investment advisors, they are important tools in your retirement planning arsenal.