One of the available tools for individuals when planning for retirement is a retirement calculator. Several companies offer these interactive devices online including financial publications, insurance companies and investment firms. Which calculator you choose to employ will depend on what it is you want to know.
If you want to know if you are currently saving enough for retirement, then you want to use a retirement savings calculator. This type of calculator takes information from you regarding your current saved assets, savings each month, and the balance in any retirement plans you may have (including social security payments) and extrapolates these numbers to reach a savings balance you will achieve on retirement day. Against this figure are compared expected living expenses when you retire as well as your life expectancy. Usually, you will receive two categories of information from this calculation. This first is your asset balance at retirement and for each year you are retired. The second is how your living expenses will be paid during retirement – whether from fixed income sources (pensions and social security) or from liquidating asset balances. From this information you will be able to determine if you are saving enough today to fund your retirement throughout your life expectancy.
Another type of retirement calculator gives you the probability of reaching your retirement savings nest egg goals. To arrive at this goal figure, you input specific data points such as your current age, desired retirement age, income savings rate and desired income in retirement. The calculator projects this data onto a typical asset allocation portfolio of your choosing to determine the probable rates of return your savings portfolio will achieve in your pre-retirement years. The calculated balance at retirement is then compared against your income needs during retirement and gives a probability in percentage terms of getting where you need to be.
The two examples cited above compare needs in retirement against your ability to earn and save. For an even simpler retirement calculator, many sites offer one that will give you an answer in dollar terms – given how much you’ve saved to date, your expected rate of return and your planned contributions. The result is the dollar amount you will have saved at your planned retirement age, but does not answer the question “will it be enough”.
No retirement calculator can quantify unforeseen expenses such as uncovered medical expenses, financial assistance for children, or any other of life’s uncertainties. Experts caution that these calculators should only be used as guidelines.
Spectrem data reveals that 90% of Mass Affluent households want a fixed income they can count on during retirement. A smaller percentage, 58%, actually believe that they will have sufficient monies saved to live they way they want to during retirement.