There’s an old adage in the world of computer science that goes “garbage in, garbage out”. That basically means that your finished product is only as good as your inputs. The same goes for retirement planning using retirement calculators: you’ll only get useful information out of them if you are accurate with the numbers you feed it. Here are some tips to make sure that you get good estimates from a retirement calculator.
Retirement Calculators Depend on Proper Inputs
Retirement calculators give you a goal to work towards that can be useful in planning. These calculators, like the one offered by The Vanguard Group, require you to input correct data for them to give you useful numbers in return. Any retirement planning should therefore begin with asking yourself a few general questions:
- How much will you be spending every year after you retire?
- How long do you forecast that you and your spouse will live until?
- What income from both government and your previous employers benefit programs can you rely upon?
- What will the forecasted interest rate be?
- What is the forecasted growth rate of your investment income?
- What is the forecasted age of retirement for both you and your spouse?
Answering many of these questions requires that you make some informed assumptions even though no one has a crystal ball to see what exactly the future holds.
Take Investment Calculators with a Grain of Salt
Retirement calculators help give retirees a ballpark figure of how much they’ll need to retire comfortably. But these calculators have built-in assumptions that are used to create their calculations. A well-designed retirement calculator should model the future using a wide range of variables. They should also have the flexibility to change various assumptions about the future:
- How does longevity affect my projected retirement needs?
- What if we changed the inflation rate?
- What if my investment income comes from a high dividend portfolio versus a more conventional fixed income asset allocation?
- What if I delay taking my social security benefits?
It’s important to regularly take out your preferred retirement calculator and run your calculations again. As your life circumstance changes, or perhaps the economic environment around you starts drifting further away from the conditions that netted your previous calculations, it will be time to update your retirement calculations. It’s important to keep your inputs fresh so you get an accurate target goal from your calculator that is usable. If you have any questions about calculating how much you’ll need to comfortably retire, please contact us today.
