Even if you’re a twenty-something, just starting to invest in your Roth IRA, it’s important to have at least a simple retirement goal in mind. The famous Yogi Berra said it best:
If you don’t know where you’re going, you might not get there. – Yogi Berra
Once you know when you want to retire and how much you’ll spend in your golden years, you can determine if you’re currently saving enough. Although it sounds simple, there are some other variables that can affect the amount you should be saving. The amount your spouse is saving is a big factor. Additionally, your other assets (i.e. IRAs and CDs) and expected future lifestyle are all part of the equation. Fortunately, there are some excellent online retirement calculators to help factor in all the right variables and guide you towards a successful retirement.
Online Retirement Calculators
After reviewing multiple online retirement calculators, I’ve compiled a list of only the best. Other calculators were too simplistic and did not provide enough settings to produce a useful report for retirement planning.
Smart Money Retirement Planner – http://www.smartmoney.com/retirement/planner/
If you just want one simple retirement planning tool to get a nice and simple estimate, go with the Smart Money Retirement Planner. Smart Money has managed to make their retirement planner controls intuitive for beginners, yet capable of handling complex scenarios for the tech-savvy user.
When you first visit the Smart Money Retirement Planner tool, it provides a useful infographic to show you around the various buttons and the order in which they’re used.
Once you close the initial instructions, the Smart Money Retirement Planner’s default settings do not represent a comfortable retirement scenario. The tool defaults to a life expectancy of around 85 years old and you can see in the image below how the funds run dry around age 76. Not good.
Input your own variables into the tool and watch how the curve changes. Ideally, you want the curve to go straight out to the right and off the tool’s screen. However, you can see how changing a few variables will make your portfolio last just beyond your life expectancy (shown below). Once your portfolio outlasts your life expectancy (which can be changed in the tool), Smart Money quickly congratulates you for being a good saver.
The Smart Money Retirement Planner is also available for the iPad and can be downloaded from iTunes.
In addition to individual, one-on-one help from a customer service representative, Fidelity offers multiple online tools for retirement planning. They offer the following options:
- myPlan Snapshot 2 – Understand your readiness in five easy questions
- Retirement Quick Check – Learn how much you’ll need to save for retirement
- Retirement Income Planner 2 – Get a detailed analysis of your retirement income and expenses
- Fidelity Income Strategy Evaluator – Find a strategy to help meet you retirement income needs
- Income Product Planner – See what income products might be rights for you
- myPlan Monitor – Find out at-a-glance if your retirement plan is on track
Fidelity also offers calculators specific to IRAs, rollovers, and taking withdrawals from a retirement plan. For this article, I chose the Retirement Quick Check (RQC) tool and provided random answers to the questions presented by the tool. Fidelity claims to run over 250 calculations to determine the best and worst case scenarios for your portfolio. The result is an easily understood graph whereby the worst, average, and best scenarios are clearly shown. The blue line on the graph indicates the worst case scenario (if the stock market performs less than average) and the red vertical line marks the shortfall. The green line indicates the best case scenario (if the stock market performs well), which appears to show my imaginary portfolio growing well beyond my life expectancy.
A nice feature of the Retirement Quick Check is the additional views it offers. In addition to “Assets Over Time,” which is shown above, QRC users can view Monthly Income and Total Assets. The last step of the QRC is an “Action Plan” provided by Fidelity. The Action Plan is a series of steps you can take to help strengthen your retirement portfolio.
I also tried the “myPlan Snapshot” tool provided Fidelity, which available to everyone, including non-customers. Although the tool is somewhat simplistic (it only asks five questions), it essentially accomplishes exactly what the name implies. The tool provides a “quick and dirty” snapshot of your retirement situation and what you’re on track to have. In the image below, the bar on the left indicates the worst case scenario while the bar on the right indicates the best case scenario. The idea is to make sure the green horizontal line (the goal) is not far from the worst case scenario. In other words, you want to save enough so that you’ll be safe in retirement despite a bear market.
Fidelity certainly offers a fantastic array of retirement planning calculators among other tools. Unfortunately, some of the calculators are limited to customers only. If you are a current Fidelity customer, make sure you take advantage of the planning tools at your disposal. If you use another brokerage firm for retirement savings, check their website for similar retirement calculators and see how they compare.
T. Rowe Price Retirement Income Calculator – https://www3.troweprice.com/ric/ricweb/public/ric.do
The T. Rowe Price Retirement Income Calculator only takes a few minutes to complete. It prompts you to enter in a good amount of detail, including the balances for different types of retirement accounts and how much your employer contributes to your retirement plan. It allows you to set a custom asset allocation plan or assume the default asset allocation model that T. Rowe Price recommends. Similar to the Fidelity retirement calculator, the T. Rowe Price Retirement Income Calculator claims to run over 1,000 market simulations to determine the range of possibilities for your saving plan.
After the calculations, you receive an estimate of your monthly projected income in retirement, and the likelihood of your savings lasting your entire retirement. Another nice feature is the “compare” button, which allows you to quickly make adjustments to your original answers and generate a new graph to compare against.
ESPlanner Basic – https://basic.esplanner.com/
Designed by a Boston University economics professor, the ESPlanner Basic is for the most serious retirement planners among us. The patent-pending software can address important considerations like maintaining a stable standard of living, downsizing your home, having children and changing jobs.
It’s the only retirement calculator which includes taxes and insurance. It has four distinct modes of calculating retirement scenarios:
- Economics Planning mode – Your annual discretionary spending targets are set to smooth your living standard (discretionary spending per household member adjusted for economies in shared living and the relative costs of children) without putting you into debt.
- Conventional Planning mode – You enter (in today’s dollars) your annual post-retirement discretionary spending target and ESPlanner sets the annual pre-retirement targets to smooth your living standard prior to retirement. If you set your post-retirement target too high, your pre-retirement spending will be negative (shown in red), which is infeasible.
- Upside Investing mode (available for purchase) – ESPlanner uses economics-based planning to establish your living standard floor assuming all your risky investments (stocks) are lost. But is also shows the potential for your living standard to exceed the floor; i.e., for you to enjoy an upside if your stocks do well. As you can verify, putting more in the stock market improves your upside, but lowers your floor. With Upside Investing you only spend out of your stocks after they have been converted to safe assets. Long-Term Treasury Inflation Protected Securities (TIPS) are an example of a safe asset. They are yielding close to a 2 percent real (after-inflation) rate of return. But you have the option of setting your own safe real return.
- Monte Carlo mode – Build portfolios and specify a spending behavior. Unlike Upside Investing, where you ignore your risky assets (until they are converted to safe assets) in deciding how much to spend, in Monte Carlo mode you can choose to spend aggressively (assuming you will earn, for sure, the mean real return on your portfolio), cautiously (assuming you will earn, for sure, half the mean real return), and conservatively (assuming you will earn, for sure, a zero real return). When you spend less aggressively, you leave more assets available to support your future living standard (i.e., you reduce your current living standard, but have less future downside living standard risk).
- Retirement age (and spouse’s)
- Earnings (and spouse’s)
- Special annual expenses (e.g. children’s tuition)
- Pensions (and spouse’s)
- Social security expectations
- Tax hikes
- Social security benefit cuts
The final report is very easy to understand and share as it can be printed or emailed to anyone.
Motley Fool Retirement Calculators – http://www.fool.com/calcs/calculators.htm#ret
Motley Fool provides a whole suite of retirement calculators which are designed to answer specific questions:
- How will retirement affect my expenses?
- Am I saving enough? What can I change?
- How will this account be used?
- What will I earn with this account?
- How advantageous is increasing my savings?
- Which savings or income source will be the largest?
- How much can I invest before taxes each year?
- What if I underestimate my expenses?
- What will my income be after I retire?
- What will my expenses be after I retire?
- What happens if tax laws change?
- How much of an effect can inflation have?
- Which savings should be used first?
- How much will Social Security provide?
- What if Social Security no longer exists?
Each calculator, which opens in a new window if clicked, looks very similar in terms of form fields. The only difference between the tools is how the information is presented in graphic form after the calculations.
Although the Motley Fool calculators are not as visually appealing as the other retirement calculators, if you have a specific question about your retirement plan, they may be all you need.
Online Retirement Calculator Improvements
Despite the complexity of some of the retirement calculators, I noticed a few shortcomings during my review. For one, there’s always the possibility of returning to the workforce after retirement. If you choose to work again, it could change how much you need to save for retirement. Minimized living expenses is a variable that none of the online calculators seem to consider. Additionally, if you choose to move to a lower tax state and live in a smaller residence, many retirement calculators don’t have the flexibility to calculate based on those variables.
Calculate Retirement Savings Periodically
Despite all of these fancy retirement calculators, the unpredictable nature of our lives does not fit neatly into most retirement saving models. The best planners among us may be blind-sided by any number of life-changing events: disability, providing for aging parents, or college financing. The purposes of the retirement calculators is to understand your current position and which direction you want to travel. Any life-changing events can be considered detours along your path to prosperity. The important part is to be following a plan of action in the first place.
Although the tools mentioned above can provide retirement guidance at a point in time, market and economic factors are always in a state of flux. It’s important to review your retirement plan regularly, even more so as you get older. Make sure that your assumptions still hold true and you don’t be afraid to find a certified financial planner and get professional guidance.
If you have any retirement calculator tips or tools, or other advice, share them with us in the comments.
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