June 11, 2013 -- (Note: This article was written in early June and posted on our Blog, where some readers might have had trouble accessing it. You can also see the Blog version (and make comments) here:
What is the best retirement calculator to help you determine how much money you need for retirement? The short answer is ... just about any good one, because more information leads to better retirement outcomes. The Employee Benefits Retirement Institute (EBRI) recently found that people in the lowest-income quartile who use a retirement calculator can improve the probability that they will not run short of money in retirement by 14.6 to 18.2 percentage points. This article will review a range of some of the better calculators as well as explain why they are useful.
What are online retirement calculators - and how can I find a good one?
Most retirement calculators have to do with retirement finances - they take inputs like how much money you have saved, what type of investment vehicles you prefer, and what your current income and future lifestyle expenditures look like. Once you have put in these and other factors the calculator spits out information like how much you need to save, and what the probabilities are of running out of money before your the end of your life expectancy.
If you search on Google or other search engine for retirement calculator you will see an astonishing array of calculators. Just about every life insurance company, brokerage firm, and mutual fund company offers a retirement calculator, and most are pretty good. Non-profits and federal organizations like Social Security also have various types of calculators.
Here are some of our favorites:
Each calculator takes a little different spin on the issue - look at several to see what makes the most sense for you. We are not endorsing any one calculator, and know that there are many more that could have been chosen. But this will present you with a wider choice of calculator options so you can have a better chance of retirement success. After all, if you don't know how much money you need in retirement you can't save the right amount!
Social Security Estimator. This calculator is very good, although it is focused on just one facet of the puzzle - Social Security income. Most baby boomers' primary source of retirement income will be Social Security. We recommend that everyone start with this calculator, because knowing how much money you can expect from this source is an essential first step. A key component of the estimator is at what age you plan on starting to take this benefit - the longer you wait (up to age 70), the more you will get.
Firecalc. This calculator is popular with many independent financial advisors because it shows you the range of what can happen with your portfolio. You start by entering how much you need, how much you have, and how many years you want the plan to last. FIRECalc will help you get a sense of just how safe or risky your retirement plan is, based on how it would have withstood every market condition we have ever faced. The end result shows a Rorschalk-like diagram of results, which will get a good idea of whether or not your money will last long enough - under just about any circumstance from stock market boom to a 1929 style depression. FireCalc is free, although donations are welcome.
Ken Steiner - HowMuchCanIAffordtoSpendinRetirement.webs.com. Ken, who has written an article on this subject for Topretirements (see further reading below), is another non-profit resource to help you with your retirement calculations. A retired pension actuary, he has developed an Excel spreadsheet and process to help you determine how much of your available retirement resources you can spend each year, which he calls your “annual spendable amount.” This actuarial approach involves performing an annual valuation of assets and liabilities (the present value of future withdrawals) using deterministic assumptions about future experience. His website also has many helpful articles explaining how to make sure you have enough money for a long-lasting retirement.
CNN-Money. This website has a simple calculator that focuses on how much you will need for retirement, depending on your age, when you plan on retiring, and a few other factors. Then it tells you what the chances are of you getting that amount, along with suggestions on changes you might make.
Bloomberg's Retirement Calculator. This one is also quite simple. Input how much you have saved, when you want to retire, your expected rate of return - and presto - you get a number for what you have to save to get there. It includes Social Security benefits in its calculations.
AARP Calculator. The AARP Retirement Calculator takes you through various screens asking you questions about your marital status, current income, savings, social security benefits, and expected retirement lifestyle. The result is a very clear chart that shows approximately how much income you will have - and how much you need to support your expected retirement lifestyle. If there's a gap between the two, it shows you options. We like this one because it makes it very clear if you have a problem or not.
Kiplinger Savings Calculator. This Savings Calculator will help you estimate the future value of your retirement savings and determine how much more you need to save each month to reach your retirement goal. Actual results will depend on how much you contribute to your retirement accounts, the rate-of-return on your investments, and how long you live. It doesn't take taxes into account.
Charles Schwab Calculator. We like this calculator for its straightforward approach. It also offers an opportunity to input more about your investment strategy - how risk tolerant are you? After you input the usual info such as your current and expected retirement age, amount saved, how much you want to spend in retirement, etc. you end up with a graph that shows your expected savings plus any gap that exists from what you need. Like the AARP calculator - the graph makes it very clear.
Retirement Ranger. Lastly, we have to mention our very own Retirement Ranger, because it is a calculator too, although of a different kind. Use our simple 9 question calculator and it will give you a wide variety of possible retirement locations that make sense for you. It is not particularly financial (although you can select low or high cost areas); it is more a lifestyle calculator.
Are these calculators any good?
Yes, they are usually quite useful. You absolutely have to know how much money you are going to need in retirement, and if your current savings, savings plans, social security, and other income will match that number. Will you have enough? And if not, what is the shortfall and how can you make it up? Try several calculators and see which one clicks for you.
Comments? Do you have a suggestion for your favorite calculator? You can try going to the Blog version of this article and adding them there. Or if you have trouble, send us an email via Contact Us and we will add them there.
For further reading:
How Much Can You Spend in Retirement
My Wife is Worried: Will We Have Enough Money for Retirement?