When you look for a retirement calculator on the Internet, you will not have to look far. Just search Google for “retirement calculator” and you will find more calculators than you can use in a lifetime.
Making the decision which retirement calculator to use is critical to enjoying a secure and happy retirement so do not accept the first one that you find. Many of the calculators that are listed on the first page of the Google search results for “retirement calculator” are not the best calculators. They are on the first search page because they are sponsored by large company websites that have high Google page rank.
Virtually all calculators ask basic questions about current age, estimated retirement age, anticipated years in retirement, current value of retirement savings, annual salary, amount added each year to your retirement savings, etc. However, there are some very important questions that only the best retirement calculators ask.
Here are seven important features to look for to find a good retirement calculator:
It should allow individual input for you and your spouse. Age calculator It is likely that you are different ages and your social security benefits will be on a different schedule. Also, one or both of you may have a pension which is distributed on a different schedule. Withdrawals from your IRAs may be timed differently. Make certain that there are different input fields for all of this information. Some calculators have one box that you can click to indicate if the calculation includes a spouse. Do not accept this as the calculator having spousal input. More than likely, this input only changes the Social Security benefit estimate which is discussed later in this article.
- Most seniors contemplate having a retirement job so the calculator should allow for income after retirement. It should allow input for the income amount, when the income starts, and when it stops. This can have a substantial positive impact on your retirement finances.
- It should allow for lump sum additions to your retirement savings and allow you to specify the date when you predict this event will happen. Many seniors own their home which is their largest single asset. At some point, they will probably sell their home and move into an apartment or assisted living facility. The income from the house sale will help pay the apartment rent.
- It should allow you to specify your estimated post retirement income. Many retirement calculators use a fixed percentage of preretirement income as the necessary post retirement income. These percentages are usually in the 75% – 90% range which for many people is too high. The best calculators allow for time brackets for your retirement income since necessary retirement income usually decreases with age. Create a budget of your estimated retirement expenses and enter that estimate on the calculator. You can find more information on this in the resource information at the end of this article.
- Make certain that Social Security is included in the calculator and that it allows for individual input for both spouses. Also, it should allow you to input the benefits. Some calculators estimate Social Security based on your age. However, the estimates can be grossly inaccurate since the calculator has no way of knowing how much you or your spouse contributed to Social Security during your working life. Social Security is usually a major component of retirement income and it must be accurate in your calculations.
- The calculator should allow you to enter the anticipated inflation rate. Many calculators estimate this for you, but inflation in 2009 was much lower that past averages. It is possible that the calculator may not have been corrected for this and it may estimate inflation too high which would require more retirement savings than if inflation stays low.
- Look for some additional features that no other calculators offer such as comparing your retirement plan to the cycles of the stock market over history and telling you how many times your retirement plan would have been successful based on past market performance. You can find more about this calculator in the resource information at the end of this article.
As you can see, retirement planning involves more than picking a calculator, entering a few items of data, and getting the results. The way you spend the latter years of your life is important to you and especially to your spouse. You owe it to both of you to invest time and effort into creating a solid retirement plan. Use only the best retirement calculator to develop and validate your plan.