Are you ready to make that leap into retirement?
Retirement can be an uneasy stage in your life if you are not completely educated on what that future state will look like for you and your family.
When I entered into college many (many) moons ago, I used a slide rule to make calculations in pursuant to my engineering degree.
The invention and popularity of the calculator did not happen until my sophomore year.
Calculators made it easy to solve many more problems with extremely more accuracy in a shorter time frame. All the students were forced to buy calculators and embrace the new technology.
This is why planning for your retirement should not be a great mystery. The advent of the retirement calculator allows you the latitude to better understand how you should prepare, how much you should be saving, and what you should expect for a retirement income once you retire.
Choosing the right retirement calculator can be confusing as there are many to pick from. So what do you look for when choosing the “Best Retirement Calculator” for yourself that will be easily understood and show you the results in the format that you want.
In this article we will discuss how to choose the right retirement calculator, what factors will affect your calculations, what is the best use for them, and where you can go to pick the best retirement calculators for you.
Computer Is A Dumb Thing.
When I was in college taking my computer labs, my professor kept saying that the computer is a “dumb thing”.
The computer’s output is only as good as the input you give it. In other words, “garbage in equals garbage out”.
This holds true for retirement calculators.
The accuracy of the information that you will be inputting into the calculator is critical for receiving the most accurate and realistic results.
You should take time to gather your personal information before using the calculator.
You should understand your current investment balances, any projected investment you might have in retirement, what your retirement spending habits will be, and what are your assumptions going into retirement (IE. Inflation, tax assumptions).
What will be your situation entering into retirement?
Will your house be paid off?
Will you have any major healthcare issues?
Are your cars or any other major purchases paid off?
How will you make big purchases in retirement?
What is your target retirement age?
If you take time to develop these inputs before using the retirement calculator, your results will be more accurate and helpful to your planning.
Everyone, including myself, always want to jump to the answers or solutions. Preparing yourself before by gathering the needed information will pay big dividends when using the retirement calculator.
I Don’t Know What I Don’t Know!
Life is full of unknowns and this holds true for your retirement planning. So it is critical to plan for the unknown.
If you choose the right retirement calculator, it will assist you in planning for the unknown. It should let you enter assumptions that will help fight the unknowns.
What are some of the unknowns?
Do you know how long you will live? Unknown!
Can you accurately predict the inflation rate? Unknown!
With the political tides rising and falling, can you predict the economy growth rate? Unknown!
Let’s look at lifespan first. In a previous article I wrote about how the Baby Boomer generation that is retiring now will live longer than their predecessors by two more decades.
How long you will live can be tricky to plan for.
If you assume you will live to 110 or longer, then your will never be able to retire as you can never save enough.
If you assume that you will live to 75, then you probably will not save enough by underestimating your retirement savings amount.
With the modern medical care, you will probably live longer, so assume an age for yourself and your spouse that is conservative. Early to mid 90s is a conservative range and a long life.
Secondly, lets look at the inflation rate. This is an area of planning that you can not underestimate as it can be a devastating variable in your retirement.
This is an area the federal government will control as the Feds and central banks will or will not effectively manage the inflation rate for us here in the USA.
There is an article I found at Investopedia that call the inflation rate the “silent killer” of your retirement accounts.
So be flexible in your planning in regard to the inflation rate and be able to change and often adjust. As this is so important, do not underestimate this rate.
Lastly, it’s all about the economy. Once again base on how optimistic or pessimistic your are, this is another area to be conservative in your planning. Being on the conservative side on how you predict this rate will help you have enough money as you grow older.
Being overly optimistic can lead you to running out of money in your older years.
The Best Use Of The Calculators.
The best use of the retirement calculator is if it gives you the flexibility and the information you need. You should be able to estimate and project items needed for your planning and living in retirement.
Here are a few items that should be included:
- It should be flexible to estimate your rate of return now and in retirement.
- Having the ability to estimate your tax rate during retirement is beneficial.
- It should give you a visual of cash flow so you can understand how to manage your fixed income.
- It should be goals based.
- The dashboard should be appealing and easy to use.
- You should have a variety of input for the analysis sections.
- It should allow integration of social security.
- A great calculator can let you select where you are in the retirement process.
- Today it is necessary for the husband and wife to be able to enter their asset/income separately.
- It will help you plan for major purchases in the future.
Having the ability to do your planning by applying different scenarios is helpful as well. Many of the modern retirement calculators will allow you to do the items mentioned above and more.
The Selection Is Great.
Most if not all the major investment firms have retirement calculators available. The right and best retirement calculator that you choose can be a personal choice.
It is best to first understand how you want to use the calculator and what output you will require.
So when selecting the best retirement calculator for you, consider:
- This refers to the reliability and repeatably of results.
- The versatility of the tool is required to allow you to give it many input options to customize your data and results.
- This is user-friendliness and is it visually appealing.
- The tools should give you the format of results that you want such as graphs or spreadsheets.
- It should be easy to modify your inputs and allow different scenarios to be run.
- User Adaptability
- The calculator should show the user how to use the tool and provide assistance when needed.
- Tax Calculations
- The best retirement calculator should allow you to have the ability to do tax calculations and predictions.
I’m Equipped, Now What?
Now you should know that there is more to picking the best retirement calculators than just picking one randomly.
You need to make sure you can use it with ease and understand the inputs required for the most accurate results.
Planning is everything when it comes to your future. Take the time to prepare and make the most accurate assumptions that you can before using a retirement calculator.
Do your homework before selecting the best retirement calculator and before entering your information.
Remember the saying, “Failure to Plan is Planning to Fail”.
Now go get the best retirement calculator for you and get the best retirement results you deserve.
I would love to hear what you have to say on this subject or hear your experiences, so just leave a comment below and I will get back to you ASAP.