Here's my gripe about retirement calculators: they don't seem to take life changes into account. You enter your income and the amount you save monthly, or you enter your income and the percentage of it you save monthly. Sometimes the calculator asks you about your yearly raises in terms of a percentage, as if your income will increase steadily and you will continue to save at a steady percent rate until retirement. More complicated calculators may be able to take into account two or more separate retirement accounts, but those tend to ask a whole lot of questions for which I have no answers, like the amount of equity in my home (uh...zero?). Some take inflation into account, some don't. But none that I've yet found take life into account, really. No job changes, no major salary bumps--just a straight upward trajectory.
I guess what I'm really complaining about is that none of these calculators can give me a number, a be-all, end-all kind of number that will tell me what I will need to retire and whether or not I can meet that goal, thus offering me some stamp of security. That's pretty silly--they're internet calculators, of course they can't predict that sort of thing.
In lieu of the set-in-stone security we might like to have, I guess all we can do is our best: start early, save as much as possible, and hope for the best.
Thursday, February 08, 2007
Young People and Retirement Calculators
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6 comments:
Unfortunately it's not that easy. That's what makes financial planning so important. It's also not something you can do one time and forget about. At least once a year, you should review the past and look into the future, which is now one year closer.
I guess I usually don't like to think that far ahead, but the advice I've given young people is this: First, understand that your ideas of retirement will change every year until you get there, and then only every 12 months afterwards. Second, consider how much moneyit takes monthly for you to live comfortably now. Assume you will be retired for at least 10 years. You will need at least that much.
Of course it's much more complicated, but this is definitely a start, and that already puts you ahead of many of your peers.
It's job security for guys like me! I don't think there will ever be a freebie calculator on the web that will be able to replace the tools that I have and the years of experience. Planning is as much an art as it is a science and the software engineers designing these calculators don't get it.
Other useful sources for Calculators are cnn.money.com and www.wallstreetquest.com
Tom
I have had my complaints about retirement calculators too. Some of them are just not rigorous enough. And like most mathematical theories there are *assumptions* that can throw you completely off the track.
Sometimes I think we would do better with just a paper and a pencil...but may be people don't like to do just that.
Try a spreadsheet building your own model. That's what I would do if I was this annoyed about it. I figure these calculators I see online are just a quick and dirty way to get a number to use as a goal or benchmark. But really, a periodic review is necessary because life happens and what was acceptable yesterday is unacceptable today. C'est la vie!
FWIW, just take a number and adjust it next year. It'll give you something to blog about. :-)
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