The Ultimate Retirement Planning Calculator offer
outstanding functionality combined with amazing simplicity. It does all the
usual forecasting of retirement savings needs, adjusting for inflation, etc.
that other retirement calculators do consistent with the way people used to
retire, but in addition it allows you to plan a modern retirement with phased
income, part-time business income, real estate income, and much more.
You can add up to three post-retirement incomes, specify
their duration and growth, and even add four separate one-time benefits (sale
of home, inheritance, sale of business, etc.). You can also print out
retirement planning reports for any number of what-if scenarios by changing any
factor on the page and recalculating.
Finally, if you are confused about anything just click
the data entry box for that field and a help display with special instructions
will appear in the right-hand column.
Tips for the Best
Results
While this retirement calculator is a valuable tool when
used properly, it can dangerously mislead you when used improperly.
The best retirement calculators allow you to model your
financial plan by varying input assumptions and then projecting those
assumptions into the future. You can include projected income sources, growth
of retirement savings, as well as model the sale of substantial assets such as
a business or real estate to see how it affects savings growth and income over
time.
In other words, retirement calculators make the math of
long-term financial modelling easy. That is their redeeming feature. You can
put real numbers behind your future plans to decide both how much money you
need to retire and if you are saving enough to reach the goal.
Without a retirement calculator the math would be too
complicated for all but the most dedicated spreadsheet junkies.
Retirement
Calculator Dangers Revealed
The incorrect way to use a retirement calculator is to
believe in the “magic number myth”.
You’ve probably seen the advertisements from brokerage
firms asking, “How much is your number?” with people walking around with red
numbers stamped on their forehead. This is nonsense. It doesn’t work that way.
There is no magic number. All retirement calculations are just mathematical
projections of input assumptions to form hypothetical estimates.
In fact, your estimate for how much money you need to
retire is only as accurate as the assumptions used to make that estimate. If
your input assumption is wrong then the retirement estimate is wrong as well
because it is merely a mathematical projection of the chosen assumptions –
nothing more.
Don’t be deluded by the apparent mathematical precision
of a retirement calculator into believing the estimate provided is similarly
accurate. It isn’t.
Assumptions
Required To Estimate How Much Money You Need To Retire
All retirement calculators require the same basic inputs
to work their magic – your retirement age, life expectancy, inflation,
investment return, portfolio size, and expected retirement expenses. These are
the required assumptions, and every calculator must have these inputs. No
exceptions allowed because the math requires these inputs.
The fundamental problem is many of these required assumptions
are tantamount to forecasting the future, which is impossible. Unless you have
a crystal ball or can read goat entrails then the future is unknowable. It
cannot be predicted with sufficient reliability to bet your financial future
on.
The industry standard approach for dealing with these
unknowable assumptions is to apply historical average estimates. The
implication is the past is indicative of the future. For example, the
historical average inflation rate in the United States has approximated 3% so
most experts recommend using 3% for your future inflation projection.
The problem with this approach is obvious. The future is
not the past, and the only inflation rate that matters to your retirement
forecast is in the unknowable future – not the past. Forecasting this number
accurately is impossible. Ph.D. experts who’ve made a career studying inflation
can’t even project it accurately for just one year into the future. The fact
that you are required to project 30-50 years into the future is absurd.
Similarly, consider the life expectancy assumption.
Nobody can know when they are going to die. The whole idea is ridiculous.
The industry standard solution is to use life expectancy
tables and project the average (possibly adjusting for personal health issues
or family history), but this makes no sense. Nobody’s date with destiny can be
predicted statistically because no single life expectancy has any statistical
validity. You are no more likely to die at age 83 than you are today or age 90.
Death for any individual is a one-time event that cannot be predicted
statistically. It is a misuse of statistics because life expectancy is only
valid for large groups of people like what the IRS or an insurance company
works with. It is not valid for any one individual.
Best Retirement
Calculator Practices – Iteration vs. Set-It-&-Forget-It
There is a reliable solution to planning for retirement.
It just doesn’t follow the conventional wisdom.
If you want to apply the conventional model for
retirement planning you must create a range of reasonable estimates for each
assumption and then build a confidence interval for your retirement number.
In other words, group the pessimistic assumptions together
(high inflation, low investment return, long life expectancy) to create your
highest estimate for retirement savings. Then group your most optimistic
assumptions together (low inflation, high investment return, early death) to
create a low-ball estimate for how much money you need to retire. Reality will
probably be somewhere in between.
Once this is complete don’t just set it and forget it.
Instead, repeat the process of estimating your retirement needs by improving
your estimates based on what has actually occurred since your last calculation.
Over time you will correct and adjust your way to an accurate retirement number
like a rocket heading to its target.
Ultimate Retirement Calculator Terms and Definitions:
* Retirement age – age at which a person is required to
step down. Usually referred to as mandatory retirement age. Can also be used to
describe a standard age where most people retire such as age 65 in the United
States.
* Retirement benefits – a monthly payment and other
benefits such as health care for a person who has reached retirement age.
* Pension – an arrangement to pay a person a regular
income when they are no longer earning by actually working
* Government pension – an arrangement of support given by
some government to its senior citizens.
Life expectancy – the average period that a person is
expected to live.
* Desired annual retirement income – the amount that a
retired person wishes to have as household income
* Desired estate – the amount of estate a retired person
wishes to leave to his loved ones
Access website and enter you data to get overview on your
fiscal perspectives at retirement: http://financialmentor.com/calculator/best-retirement-calculator
