Focus: Financial - The Best Retirement Calculator
Financial tools, tips and tricks for your dream retirement!
The Best Retirement Calculator You've (Probably) Never Used
How to make Financial tradeoff decisions for your retirement goals
Photo by Firmbee.com on Unsplash
I was making my way through the maze of gray cubicles in the gray building I called “home” for 10ish hours a days 5 or more days a week. I had traveled that path hundreds of times in my career, but this one day it just seemed so… gray… and I wondered to myself how many more years I was going to be seeing these same gray, carpeted, temporary walls every day. Don’t get me wrong. I loved my job, but I also knew there was something beyond those walls and I wanted to have time to explore it. So I set out to figure out where I was, financially, and when I might be able to retire. The best tools I found for doing the financial estimations were the plethora of retirement calculators out there. Believe me, I’ve used a ton of them and, by far the best one I’ve found is one that The Financial Mentor has on his site called The Ultimate Retirement Calculator.
What is a retirement calculator?
A retirement calculator is an online tool that allows you to input your financials and assumptions and it will calculate whether you are on track to retire, based on your assumptions. Let me unpack that for you a bit. First of all, it is based on assumptions - YOUR assumptions. So you probably need to do some research and thinking before you head over to the calculator. You will need to have some idea of your net worth (things you own minus things you owe). You’ll need to have some idea of how much you’ll spend each month in retirement. Most will ask you what you think inflation will be and how much you think your investments will return. You can use history for those inputs - but you’ll need to research that history. The most morbid of your inputs will be how long you believe you will live. You can use actuarial data, or just look at your family history and make a guess. OK, so you have your inputs, next you need to know that these calculators will return an ESTIMATE of what your situation will look like. You want to use this data as a directional signal, not as an absolute answer. If it says, for instance, that you will have $20 left over when you are 90, you won’t. There is no way every single assumption you used will come true, so there is no way this calculator can tell you exactly how much money you will have in 30 or more years. This is an estimate only. DO NOT HANG YOUR HAT ON THE EXACT ANSWER IT GIVES YOU.
How do you use a retirement calculator?
If a retirement calculator doesn’t give me an exact answer, how can I use it? Well, directionally correct answers can be very helpful. If it tells you that you will run out of money 5 years after you retire, but you are expecting to live 25 years after you retire, that might give you a hint that you’ll need to make some adjustments. The way I use the Financial Mentor’s calculator is for scenario planning. What if my assumptions are wrong? It’s easy to change your assumptions and watch your cash flow change with this calculator. Not sure if inflation will be 2% or 3%? It’s a 2 second change of an assumption and you can watch your 30 year cash flow change in the blink of an eye. Is it more impactful to reduce your budget by $500 a month, or look at changing your portfolio mix? You’ll know the directional answer to that in less than 5 minutes and you can take that information to your financial advisor to have a much more robust talk than you might otherwise have.
What makes The Ultimate Retirement Calculator so great?
This calculator has options to enter more assumptions than any other I’ve found. You can use it at the level of other calculators, where you just put in the minimum number of assumptions and get a high level directional answer, or you can input more details which will let you run multiple scenarios that other calculators that I’ve found will not. It also shows you cash flow by year, which can be helpful if you’re evaluating certain asset decisions you may need to make down the road. Finally, it lets you change your cash flows during retirement, which is a very likely scenario. (For instance, you may sell a rental property which would give you a big cash inflow but then eliminate a cash flow from the rental income.) This calculator can be very helpful for evaluating some very common life decisions. Are you wondering whether to take social security at 62, FRA (full retirement age) or 70? You can look up what your social security will be at each of those ages at the SSA website and input them into the calculator. The calculator will spit out your yearly cash flows for each scenario. Compare your ending balance for each scenario and you’ll know, based on your assumptions for your situation, which is the best time for you to take the government up on it’s offer for social security. Or, maybe you’d like to know whether it is better to cut your budget by a few hundred a month, or downsize a year earlier and use that cash flow to invest and live on. Again, input both scenarios into the calculator, compare your ending balance and see what comes out. Directionally, you’ll have a better idea of what those life decisions will mean down the road.
Play around with it! Try some scenarios you think might be realistic or just see how numbers change based on inputs to see which are the most impactful to your plans. Please remember that these numbers are directional, based on your assumptions and inputs. The more scenarios you run, the more you will know about your financial situation and how well situated you are for your goals. All of this will be good information to discuss with your financial advisor, and maybe even a CPA or estate planner. Information is power, my friends. Use this information to help power your retirement! You’ll be glad you did… and you may even have some fun with financials for a change!
If you’re wondering about me, I did use this information and information like it to make some life decisions. I’ve found my way past those gray walls into retirement. I won’t say it was the retirement calculator that got me here, but I will say that it was the first step for me in determining whether there were actions I could take to help lay the path.
Habits To Build Confidence
Try building a habit or two into your routine! Your Financial confidence will grow exponentially!
Tiny: Read an article each week focused on Financial wellness in retirement. Start with a couple of the links below!
Bold: Track your spending this month. It will help you understand how much you are spending and whether there are places you can more easily cut back, if needed. You can also identify places where it will change in retirement. You can track it in a notebook, a spreadsheet or, if you’re like me and want it tracked automatically, try Mint (link below) and it will automatically update your spending based on the accounts you link!
Audacious: Make an appointment with a Financial Advisor or Financial Planner. Read the article below about questions to ask him or her. Bring in a few scenarios that you calculated with the Ultimate Financial Calculator. Find out what changes you may need to make to get on track for your Retirement goals!
More Reading
Can’t get enough? Here are some more articles and resources to help you plan your Financials for Retirement!
If you’re just starting to look at your retirement goals and options, a good place to start is with a Financial professional. Not sure which one to engage or what questions to ask? You’re not alone! It can be confusing and daunting. Here’s an article on 10 questions to ask your Financial professional that can help with some of your questions and give you some ideas of who to engage and how.
You know you should track your spending and try to stick to a budget, but writing down every latte you drink is a pain in the… Never fear! Link your checking account and credit card to Mint and it will do the tracking for you! The app sometimes gets the spending category wrong, so you’ll need to log in from time to time and update some of the entries, but that’s much easier than trying to remember to record every time you spend a dime!
If tracking your spending is old hat and you’re ready to automate more of your financial life, I LOVE Personal Capital. It automatically updates your net worth and spending every time you log in, if you have linked all of your accounts. It gives you a dashboard of changes and tells you the “movers” of those changes. It also warns you about spending changes. There is a retirement calculator in this app, too, that is great because it allows you to look at scenarios like adding and reducing debt over time (kids in college, anyone?) Fair warning, though, you will be contacted by one of their Financial advisors. Just ignore them and they go away.
For those of you that love playing with Financials and scenario planning, have I got a tool for you! Here’s a Monte Carlo simulator for your portfolio! It runs 10K simulations based on your inputs, (or on history if you prefer) and tells you what percent of those scenarios survived all of your withdrawals. It even allows you to front end load the worst year(s) so you can test sequence of returns risk. Super fun for those of us who geek out on Finance!
Next week’s focus: Purpose!
I hope you’ll join me for a read next week on planning for your purpose in retirement!
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I love the idea of an inn to inn hike! Just ordered the book, can't wait! Definitely going to plan one of these.
Great advice! I used several calculators as well, but I also took advantage of Fidelity's free assessment. I got a 50 page report highly customized to my situation. That really helped me pull the trigger!