Estimating your retirement needs with an online calculator can offer an anonymous, low-commitment method to help obtain the basic estimates you need to get started and know how much money you need to retire comfortably. But not all retirement calculators are created equal.
According to the Employee Benefit Research Institute’s most recent retirement confidence survey, nearly one in every two workers and almost three in every four retirees — have no interest in using education and advice from online advice providers. Even though financial and retirement planning calculators have flaws, using them could be better than not using them. Of note, the EBRI study also found that workers who calculate who how much they need save for retirement tend to save more, too.
What are Financial Calculators?
Financial calculators allow you to estimate mortgages, loans, investments, debt, credit cards, retirement, and more – each with related information designed to help determine how much you need to save/invest for each goal.
A good financial calculator should factor in such variables as interest, fees, and taxes to help you decide whether to invest in a new savings account, take out new debt, or even purchase a new car or home.
Financial Calculators for Retirement Planning
Online retirement calculators are good for determining how much you need to save to providea more sustainable income for your lifetime. The most effective and useful calculators let you model different retirement scenarios, taking into account the variables that can affect how long your money will last so that you can save and invest accordingly.
It would be hard – if not impossible – to find one, best retirement calculator that would work for everyone’s situation.
Pros of Online Calculators
Online financial/retirement calculators can help craft a savings plan, measure your progress, and forecast scenarios based on adjustments to an input. Benefits of using certain online calculators could include:
- Availability: You’re only a click away from the guessing game if you start using an online calculator.
- Retirement Savings Timeline: Financial calculators can give you a general idea of how much income you might have in retirement or how much you need to save to retire at a specific time.
- All-in-One Performance: You can use calculators to find out solutions of simple calculations to complex equations such as savings growth, asset allocations, IRA eligibility, Roth IRA conversions and more.
- Time-Saving: Calculators could help resolve your issues quicker than without, thus, you can save time.
- Ease of Use: The other advantage of online calculators is that they are mostly user-friendly.
Cons of Online Calculators
A retirement calculator can be a helpful tool to steer you in the right direction for a comfortable retirement, but some of them can easily throw you off track. Areas where retirement calculators may be getting it wrong include:
- Social Security Projections: Most retirees get a third or more of retirement income from Social Security. Yet many retirement calculators don’t gather the detailed information needed to project these benefits accurately.
- Rate-of-Return Assumptions: What rate of return does the calculator assume for your portfolio? Is it reasonable? The best calculators let you put in what-if scenarios, and run the numbers using alternative rate-of-return projections.
- Tax Rate Assumptions: We can’t know for sure what the tax rates will be in decades to come, which could throw off your plans down the line.
- Life Happens: Numbers don’t tell the whole story. Even with all of these calculations, technology can’t predict the future. There’s no telling whether the markets will crash, your health will take a turn for the worse, or some other catastrophic event occurs that eats away at your savings. They also don’t consider the possibility that you may move at some point during retirement to a new city with a higher cost of living.
It’s impossible to know exactly how your portfolio will perform over the next 10, 20, 30 or more years, but you can predict a range of likely situations, and position yourself accordingly.
A good retirement calculator will ask for inputs such as your current salary, the percentage of your income you plan to replace once you retire, and whether you want to include Social Security benefits in your calculations. Some will also give you the option to choose the rate of return on your investments, allowing you to plan for best-case and worst-case scenarios.
Financial advisors can help minimize the risk associated with online calculators. At Johnson Wealth and Income Management, we can assess your individual situation, talk about your goals and plans for the future, and help you with recommendations on next steps.
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