If you have been saving for your retirement and wondering if you’re on target with your current savings, there are tools available to help you find that out.
They are called retirement calculators.
But if you have looked at a few, you might notice they are not all the same.
There are some reasons why you should be wary of relying only on retirement calculators to help you determine how much you need to save for retirement.
They Give a Quick Overview
Free retirement calculators will give you a fast estimate of how much you should save for retirement. They are based on estimates of the average retirement age of any person, life expectancy, inflation rates, investment return, portfolio size, and retirement expenses. The problem with a quick estimate is that it is likely inaccurate. You need to delve a little deeper and take more time if you want greater accuracy in your figures.
They Make Assumptions
Part of the reason retirement calculators are inaccurate is because they use assumptions to make their estimates. For example, no one knows how long they will live, but it would certainly be better to estimate on the high side than to estimate based on the average and run out of money before you die. Several years ago, Social Security increased the retirement age because people are living longer, and obviously a longer life span means you need to save more.
So, what can you use instead of inaccurate retirement calculators?
Retirement planning software is a tool that can help you determine how to plan for your future retirement. Some retirement calculators use clever ploys by claiming you can figure out what need to know “in 10 minutes or less”, but don't the last 30 years or so of your life warrant more consideration than just 10 minutes?
Another tool to help you plan for your retirement is a retirement counselor or coach. They can help you apply various scenarios to determine what life choices are the best for your unique situation. They can also help you to learn the principals of retirement planning, such as inflation, and how they can affect your savings. A coach can put things into perspective by helping you to estimate future retirement returns based on current data.
Saving for retirement is something we all need to do. But in order to know whether or not we are saving enough to secure our future, we must be able to estimate our future needs with as much accuracy as possible. Retirement calculators can help us with that task, but they may not always be accurate. This is why you should explore other options as well.
Are you wary of retirement calculators?