Tools to Help Determine Retirement Readiness
Determining whether or not you’re prepared for retirement can feel like a one million dollar question. The number of factors that can be considered when estimating your future stability is enough to give even the most confident among us a bit of anxiety, at times. That being said, there are some great tools available to you that can bring additional clarity to your situation and make sure you’re pointed in the right direction towards a successful retirement.
Before we share some tools that can help you calculate how much money you’ll have available in retirement, let’s first talk about a crucial piece of the puzzle. What will your income needs be once you are retired?
Many calculators will use your current income as a starting point to help you identify your projected income needs during retirement. For example, will you need 100%, 75%, 50%, or some other percentage of your current income to live comfortably when retired? The size of the nest egg you’ll require will depend on how much money you plan on spending month to month. Keep in mind that some of the expenses you’re responsible for now may not be a factor into your retirement needs (mortgage, repayment of college loans for your kids, etc).
How you plan to spend your retirement will impact your needs, as well. Do you plan to travel frequently? Make sure you account for the number of trips and their average costs in your budget. Maybe you’ve always dreamed of getting your pilot’s license and intend on regular trips to see the grandkids? Or, do you plan on downsizing, fishing on a quiet pond, and embracing a simple lifestyle? Your saving needs will likely be quite different from the frequent traveler or pilot! Perhaps you anticipate doing some occasional work as long as your health permits during retirement. The income you earn could dramatically impact the amount of money you need to have saved to live comfortably.
Whatever you consider your ideal life in retirement, think about what may change from your life today and then add or subtract from your current spending. This admittedly simple approach will give you a reasonable idea of what your monthly income needs will look like in retirement. A word of warning though: Don’t forget inflation! If you project that you need $50,000 each year to meet your needs, that is more than $60,000 ten years from now (assuming 2% annual inflation).
As you begin experimenting with retirement calculators, you’ll want to keep certain bits of information handy or commit them to memory. Current income, your current retirement account balances, monthly contributions towards retirement (both yours and your employer’s), retirement account types (Roth or Traditional), as well as other sources of income like Social Security, pensions, and annuities. While you don’t have to be concerned about having the most current information each time you run a calculation, your results will only be as good as the data you use.
Additionally, most calculators have certain assumptions built into them that you can edit like investment rate, inflation rate, withdrawal rate during retirement, life expectancy, tax rates, and many others. You can go with the defaults or customize them to see how they impact your calculations. Don’t fall into the trap of modifying the assumptions to generate a favorable result, however. While it’s helpful to understand the impact the change in each factor has on the result, it won’t benefit you to base your success on highly unlikely assumptions.
Without further adieu, here are some of the top-ranked free retirement calculators:
The American Association of Retired Persons sole focus is on retirees, so it’s no surprise their calculator is useful. It’s one of the few that includes data for a partner. The calculator is quick and very easy to use; there aren’t any bells and whistles. It allows you to include pensions and Social Security, and you can edit some variables.
This calculator has great pension features, and partner information can be included in this one, as well. It’s very simple to use, the output is easy to read, and there are a lot of items you can customize. This is one of the more robust calculators with many options to adjust income and expense details, including pensions.
The Vanguard retirement calculator is one of the simplest, and easy to use calculators out there. I suggest this one when looking for a quick estimation of your projected retirement.
This calculator has quite a few adjustable options and covers various types of income. The output, though, is the real star of this calculator. It’s got fun, colorful graphics and easy-to-read data. You will have to provide your email address to use this calculator and can expect emails from Personal Capital to start finding their way to your inbox.
This is the one of, if not the most, sophisticated and detailed retirement calculators out there. There are many options to customize, as they seem to have considered all possible scenarios for retirement planning. As with Personal Capital, you’ll need to provide your email address to access the calculator so you can expect emails from them in the future. Additionally, be aware that while this calculator has a free trial option for every tier of their offering, only one won’t require an annual subscription after 14 days.
Though using retirement calculators to gauge your readiness for retirement isn’t foolproof, it can be helpful when planning for retirement. What you’ll get out of one of these tools is a projection of possible outcomes at a particular time that can be used to help you determine if you’re on the right track or if changes need to be made to your approach.
Finally, as you near retirement check out our Mock Retirement course to learn how to successfully manage the transition between employed life and retirement.
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