Retirement Calculators: 3 Good Options
The Internet offers many free calculators to baby boomers wanting to get a better handle on whether their retirement finances are on track.
The operative words here are “on track,” because each calculator has strengths and weaknesses. Calculators aren’t capable of providing a bullet-proof analysis of the complex factors and future unknowns that will determine whether someone has done the planning and saving required to ensure a financially secure retirement.
With that caveat, Squared Away found three calculators, listed below, that do a good job. They met our criteria of being reliable, free, and easy to use. Many other calculators were quickly eliminated, because they were indecipherable or created issues on the first try.
Most important, each calculator selected covered the assumptions crucial to an accurate analysis. All ask such obvious questions as how much an older worker and spouse (or single person) have saved, their portfolio’s returns, and estimates of their Social Security and pension income. The first calculator below asks how much money the user wants to leave to his children, and all three include the user’s home equity, a major resource that most retirees are loath to tap but are under increasing financial pressure to consider. Also, the first two ask more detailed questions – and are more time-consuming – than the third, which is the best option if you want just a rough estimate of where you stand.
Finally, this blog’s writer tested each calculator and compared the results with her personal adviser’s customized analysis. Each time, the outcomes were in the same ballpark as the adviser’s. A fourth good option is to use the calculator provided by the financial company managing your employer’s 401(k) – most of the major providers offer them.
- NewRetirement. Brothers Stephen and Tim Chen designed their new calculator with their mother in mind. Perhaps that’s why their questions are so thorough. The calculator lets users select many of the assumptions that are preset in other calculators, such as how much more pre-retirees anticipate they can save. On the other hand, estimating monthly medical expenses will require some research – but it’s a crucial cost consideration, and the website offers tips. This calculator will satisfy people who aren’t afraid to train a sharper eye on their retirement prospects – a worst-case scenario is presented. The NewRetirement calculator is worth the price of using it: providing an email address.
- E$Planner Basic. This was the top pick in certified financial planner Dana Anspach’s own ranking of retirement calculators. One big reason Anspach said she likes the E$Planner, the creation of Boston University economics professor Laurence Kotlikoff, is that its underlying estimates of retirees’ income taxes are very accurate. It is also unique in asking where its user lives, presumably to more precisely estimate living expenses. Squared Away found the calculator easy to use, though the written conclusion at the end was a bit cryptic. But overall, it’s a good calculator by a reliable source.
- Target Your Retirement. Full disclosure: this simple calculator was designed at the Center for Retirement Research at Boston College, which sponsors this blog. It is, hands down, the quickest and easiest to use. We stand by its reliability, because our economists were careful to pick sound assumptions backing up the estimate of boomer’s future retirement income. When the results are presented at the end, users have the option of comparing the added benefits of downsizing to a less-expensive house or using a reverse mortgage to tap home equity. A bonus with this tool is that it lets the user slide a button from ages 62 to 70 to gauge the beneficial financial impact of working longer, which increases one’s monthly Social Security income and savings.
A calculator is no substitute for a precise and detailed estimate by a financial planner. But it’s important to start somewhere.
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Target Your Retirement is very confusing, mainly because it splits everything by self/spouse. More than half of the money and other assets (besides house) that we have is held jointly, and I am already retired. Also, there’s nothing about the current value of the house vs. the actual mortgaged amount. And it assumes pensions don’t start until age 65, which is incorrect in our case (his started already, at 62). And it doesn’t ask anything about income from trusts and income from inherited IRAs, separate from job income. I tried it but couldn’t really use it. I find T. Rowe Price’s retirement tool to be much more useful.
Target Your Retirement seems to target retirement income to 80% of the current employment. For me this is “too high”. I have a relatively high income and save 1/3 of it for retirement, so I am already living on only 67% rather than 80%. This might go a bit lower in retirement.
Retirement calculators/planners always look at retirement prospectively. With median life expectancy now in excess of 80 years, planning for the 20+ years after retirement is essential too. Both types of planing are necessary and should be approached on a joint basis if a couple is involved.
Calculators are only as good as their underlying assumptions. And the assumptions that are usually the most unreliable are those of the future retirees.
For example, EBRI reports that about 70% of pre-retirees say they ate going to work after they retire, but only about 25% actually do.
Also, it has to be difficult for calculators to make investment return assumptions. Historical data would have been of no use since 2008.
Kotlikoff’s site lacks security clearance on Mozilla’s Firefox so unable to use it.