Financial and Retirement Calculators

Financial and Retirement Calculators

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Financial and Retirement Calculators

Retirement calculators are a good way to estimate what is needed to retire, how much you need for retirement, and if you will have enough to live off of. You can easily make estimates about your future and the calculator will provide a number for what you need to retire comfortably. Retirement calculators are very handy tools, but only when they are used correctly. If you are inputting information that is incorrect, then the tool would not be considered effective. It is important as we grow older that we really think about how to be financially secure during retirement. The retirement calculators online can help you with evaluating your current savings, stock and investment options, along with projections of how much is needed to reach your desired potential life expectancy, along with how much money is needed with or without social security added.

When determining what you need to retire, you can seek a financial advisor or you can use the online calculators, as both will result in similar objective. All retirement calculators use the same assumptions to help with determining the best retirement plan. These base assumptions are, retirement age, life expectancy, inflation, investment return, portfolio size, and expected retirement expenses. There are some calculators that require more information, while there are also some that may require less information, as they assume answers to some of these inputs. No matter the type of calculator being used, they are all computing the same information. When the assumptions are inputted correctly, all calculators will compute the information is similar and not too different from each other.

According to “Financial Mentor” (2019), “The state of the art answer in retirement planning is to use actuarial tables, but these are statistical averages which have no relevance to any one person’s date with destiny.” Essentially, this means that determining, or knowing, how long one will live is not going to be accurate, but this is information that is needed when determining how much you need for retirement. Also, the longevity continues to increase, so by the time you have been added to the statistical average, the table will likely have changed to a considerably longer lifespan compared to an estimate created today. So, even though retirement calculators need accurate assumptions for the tool to be effective, determining one’s life span is really just a guess because there is no way to truly know how long one may live, no matter how healthy they are.

When planning for your future, another big aspect in determining the amount you need for retirement, is based on how much you will be spending. “The conventional wisdom is that 80-85% of pre-retirement income should be sufficient for post-retirement income” (“Financial Mentor”, 2019). Like all things with retirement planning, this too is subject to debate. You will not be commuting to and from work and will not need to buy professional attire anymore. You also will no longer be funding your retirement fund, thus making that source of cash outflow disappear. Though each of these statements are accurate, you are likely to increase lifestyle spending in the early years of retirement while you are healthy and able to enjoy an active lifestyle. This, like everything else when it comes to retirement, is different based on each individual’s desires for retirement. With this in mind, it is important that you formulate your own budget based on your life plans and create the best guesstimate for what your needs will be. If you plan to travel a lot once retired, then it could be that you need 120% of pre-retirement income. Alternatively, if you have a passion for reading and knitting, then you could be fine with 70% pre-retirement income. Honestly, no matter how careful you budget, there is a very good chance that you will be wrong. The “Financial Mentor” (2019), Just imagine trying to guess your expenses today from 20 years ago, then look forward and ask yourself if can confidently foresee your medical needs, Social Security or Medicare changes, where you will live, what health issues you will confront, and how much it will cost. There is no way to accurately determine these types of things.

The best thing to do for retirement planning, is to create your budget based on your own needs. This will be the only way to truly help with better determining the budget that you will need based on your individual goals for retirement. Of course, retirement planning will not be perfect, but formulating your own budget based on your own needs is going to be your best bet in developing a more accurate retirement budget.

References:

Financial Mentor (2019). Retrieved from https://financialmentor.com/retirement-planning/how-much-money-do-i-need-to-retire/retirement-calculators-2/17130