How much do you need to save for retirement? You can get an idea by using any of the dozens of retirement calculator tools offered for free on the Internet.
But a recent study by actuarial experts on retirement forecasting shows that many popular calculators have serious flaws. These problems could lead to serious miscalculations when you’re plotting your retirement.
The report by the Society of Actuaries analyzed 12 retirement calculators created by financial services firms, software companies, nonprofits, and government for consumers and financial planning pros. All but one of the six consumer calculators were free-and they had a host of problems.
Get insights into the reinvention of retirement - subscribe to the free weekly RetirementRevised.com eNewsletter!
“These tools take a project that is fairly complex and boil it down to something simple,” says John Turner, an economist and co-author of the report. “They don’t ask you to consider a lot of important variables.”
So it’s buyer beware when it comes to online retirement calculators. Read a more detailed analysis on retirement calculators in my recent article for CBS MoneyWatch.com.
RETIREMENT PLANNERS
How much - This tool allows you to look at your entire expected span of years in retirement, and play with various assumptions to see how variations affect your retirement security. From the American Institute of Certified Public Accountants.
How long - Life expectancy is the key to figuring out how many years of retirement you’ll need to fund. Try the calculators at Real Age, Livingto100 or the Wharton School.
ESPlanner. This software tool was created by Boston University economics professor Larry Kotlikoff. It costs $149 per year to use, but unlike some of the freebies, ESPlanner gathers more detailed data and yields more reliable forecasts.
SOCIAL SECURITY
Retirement estimator - A majority of Americans file for Social Security benefits as soon as they become eligible at age 62. In many cases, you’ll receive higher lifetime benefits by waiting at least until the Normal Retirement Age (NRA) of 66 or higher. The Social Security Administration has built a useful online Retirement Estimator that allows you to project your future benefits assuming different retirement ages. The tool is free and easy to use–you just plug in a few personal facts and your Social Security number; the site digs through your actual lifetime earning history and calculates your monthly benefit assuming different retirement ages. It’s a useful decision-making tool and takes less than five minutes to use.
Social Security Administration tables. The Social Security Administration also publishes tables showing how much your benefits will be reduced, with varying monthly benefit assumptions. The SSA’s overall Social Security planning section is here.
Social Security retirement planner. Detailed information about your Social Security retirement benefits from the Social Security Administration.
USA Today calculator. USA Today published a week-long series called “Turning 62: The Retirement Boom Begins.” The package included one of the niftiest online calculators for Social Security benefits that I’ve seen anywhere.
INVESTING
Roth IRA conversion - Estimates the change in total net-worth, at retirement, if you convert your Traditional IRA into a Roth IRA. From the American Institute of Certified Public Accountants.
Traditional IRA or Roth - determines which IRA is best suited for you. From the American Institute of Certified Public Accountants.
LONG-TERM CARE
Should you buy a long-term care policy? This calculator takes into account your age, assets and expected retirement income–very importantly–your ability to pay premiums. From the American Institute of Certified Public Accountants.
