Retirement planning software has become popular in the past few years but beware relying on them as your one-stop shop for totally accurate assessments of your retirement plan.
There are some risks in using software for retirement planning and we’ll take a look at them in a moment.
Retirement Planning Calculators
Firstly, lets look at talk about retirement calculators which have really become popular. They are available online at many of the financial websites and while they are good to give you a quick assessment, relying on them to accurately predict what you’ll need to invest each day, week, month or year is a little dangerous.
For example, online software programs such as these don’t take into account such things as:
- risks people face in retirement
- accurate prediction of investment returns due to uncertainty
- how long you will actually live during retirement
- health care costs and issues
The reason for using retirement calculators is to get a “guesstamate” of your retirement savings but more importantly, to shock you somewhat into reality and get you to realize just exactly what you’ll need to save each year. In a word, they are designed to get you on track.
Retirement Planning Software Risks
One of the major problems with retirement software is their ability to analyze risk. These are not the perfect retirement crystal balls as they cannot predict things such as how long you will live, how your health will be and other risks associated with your life that may or may not come up.
Many can create a false sense of security by “spitting out” rates of return that could be a little exaggerated. A lot of this can be due to people overestimating their investment prowess.
Retirement plans are subject to fees so again, these are not factored into estimations and will give somewhat of a false result. Over estimation comes into play to compensate for this which can all lead to figures being off the mark once again.
Social security benefits were difficult to estimate and many programs will take a rough estimate based solely on someone’s age and working life. How much they earn in a year at the present time is used and when they expect to retire.
Using real estate in the estimations. Take a look at the current real estate market and you will soon realize that trying to factor your home’s worth by the time you retire is like “trying to find a needle in a haystack.” Stack this up against what your home was worth before the real estate crash and you can see estimations can change quickly.
Trying to determine how long you’ll live in retirement. Many experts agree we are living longer and the general rule of thumb is we might expect to live at least 30 years in retirement.
Life itself presents risks and this is impossible to calculate with retirement planning software. Who can tell if you’ll win the lottery, retire earlier than expected, have health issues or you or your spouse may unexpectedly pass away. Again, only a crystal ball into the future can do this.
So in summing up, software for retirement plans are just tools and they are certainly not to be relied upon as an accurate assessment of your retirement needs. Talk to your financial planner and get more information but as a rough guide, they can get you on the right track to achieving the retirement savings goals you set for yourself.