Retirement Planning Calculators

A recent article by syndicated columnist Mark Miller discusses popular retirement calculators and flaws that could lead to serious miscalculations when planning for retirement.

Twelve retirement calculators created by financial services firms, software companies, nonprofits, and the government were analyzed by the Society of Actuaries. Six of these calculators for consumers are free of charge. The Society published a report outlining key things to look out for when using retirement calculators:

• Social Security Projections. Most retirement calculators project Social Security income using current earnings, age, and the year a person expects to retire.The best projection tool is available from the Social Security Administration; the projections are based on a person's actual earnings history.
• Rate-of-Return Assumptions. Three of the five free calculators used pre-set future investment rate-of-return assumptions that cannot be changed.The percentages for the rate-of-return varied widely; some assumed five percent, while others assumed ten percent.You must be comfortable with the pre-set rate of return in order to use the calculator.
• Life Expectancy. Some calculators automatically input the life expectancy figures.A 65-year old man can expect to live another 17 years, and a woman of the same age can expect to live another 20 years.The calculators that automatically input the life expectancy figures do not take into account differences based on race, income, and gender, and they also do not take into account that a person may live longer than the averages.If you are given the opportunity to input the life expectancy prediction, you should base your inputs on your health and family history.
• Housing. The calculators vary in the assumptions they make about what you may do with your home in retirement.Few analyze the impact of carrying a mortgage into retirement; some assume you won't liquidate your home, while others assume you will sell and downsize.
• Inflation. None of the free calculators included inflation as a risk in retirement planning.Some tools use a default inflation rate ranging from 2.3 to 4.6 percent, while others let you use just one inflation percentage forecast.Inflation can vary widely over time, and the calculators can provide inaccurate information on the purchasing power of your assets in retirement.
• Spouses. Few calculators assist couples in forecasting retirement income for a surviving spouse.They rarely allowed couples to enter separate information and different retirement dates for each spouse.Social Security benefit issues for couples can be complex and are outside the scope of an outline calculator.Couples will want to run several calculations using different life expectancy scenarios in order to better determine the income needs for both spouses.

Although retirement calculators can be helpful tools, the Society of Actuaries report highlights the dangers of do-it-yourself financial planning. 

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Oast & Hook has been providing quality legal services in Southeastern Virginia and North Carolina for more than 80 years. The attorneys at Oast & Hook can assist clients with their estate, financial, insurance, long-term care, veterans' benefits and special needs planning issues. Visit their website at www.oasthook.com for more information.

Sandra Smith

Sandra L. Smith joined the firm in 2003. She practices primarily in the areas of elder law, estate planning, estate and trust administration, special needs planning, asset protection planning, long-term care planning and Veterans' benefits. Ms. Smith is certified as an Elder Law Attorney (CELA) by The National Elder Law Foundation (NELF). In 2008, Ms. Smith was named as a Rising Star by Virginia Super Lawyers magazine. Rising Stars names the state's top up-and-coming attorneys.