Planning for retirement and estate planning is complicated enough. But it seems like every investment advisor and 401(k) company has been rolling out a new and complex retirement planning tool every week while forgetting the need for a basic and simple retirement calculator.
The idea is to be as precise as possible when helping you estimate the size of your nest egg, but so many are getting lost in the numbers.
And yet, despite their increasing sophistication, they’re still producing inaccurate results and diverging responses. One site will give you one piece of advice while another will tell you something completely different.
One site might allow for variances in state income tax rates while another will account for inflation. One site could ask you to list every asset you have, while another just wants the basics.
The problem is if you start depending on a single Internet retirement calculator or you fail to understand the end result - you could jeopardize your entire retirement.
Remember, underestimating how much you should save each month will leave you broke in your retirement. Meanwhile, overestimating can cause major money problems now as you struggle to make mortgage payments or pay your children’s college tuition.
However, there is a way to get the most out of simple retirement calculator tools. To learn how, keep reading.
Use More Than One
Don’t just depend on a single online retirement calculator to base your entire retirement future on. Instead, try several and pay close attention to which ones ask questions that are more pertinent to your current financial situation.
Merge Your Results
By looking carefully at the questions each calculator asks you and how it arrives at certain conclusions, you can start to understand it better and even merge and combine the different results. For example, one site might tell you to start saving 60 percent of your income while another will advise you to start saving 30 percent. That’s a big difference, but by understanding the results and how they were achieved, you can more likely find the balance.
You Want Features, Just Not a Laundry List
Customization is great as it allows you to fine tune a retirement calculator to your own personal needs and financial situation, but it can also make the process more complicated. Try a calculator like the one offered by the Employee Benefits Research Institute (choosetosave.org).
It allows you to input extra income sources and potential expenses like travel or lifestyle choices that could affect your savings needs. At the same time, it’s simple and easy to follow.
Consult With a Professional
A simple retirement calculator can help you gain an understanding of your financial picture, but your best bet is to also consult with an investment and financial planning professional. They can help you walk through plans, understand your investment options and merge your retirement plans with your current financial situation.
