Retirement Calculators

Retirement calculators, when combined with the advice of a professional finance consultant, can be enormously useful tools for planning your financial future. Calculators allow you to determine realistic goals and see how much you need to contribute each month to reach your target nest egg amount. Often times, particularly if you are just out of college or have just started your career, knowing where to begin when it comes to building your savings can be difficult to determine. Add inflation, changes in the market and other forces that can affect the future worth of your savings, and it might seem like the only chance you have of earning a large enough amount is to guess. A financial planner can eliminate much of the guesswork by helping you use every tool available to you, including retirement calculators, to come up with a realistic saving strategy.

Benefits of Calculators

There are several online calculators available, each with different benefits. Some retirement calculators show what you need to put away each month to save a million dollars by the time you retire, while others show what consequences you might incur if you cash in your 401k plan too soon. You can also see what might happen if you choose a more aggressive investment, or how living longer than you expect could affect your savings. Simple calculators are also free and available online, making them convenient and easily accessible.

Most retirement calculators will take inflation consideration for you, although some will ask you to guess. Most will give you options for how much you think your investments will earn on an annual basis, allowing you to choose a conservative, moderate or aggressive approach. More advanced calculators let you incorporate different sources of income, including part-time jobs after you retire from employment. Some allow you to enter your expected investments directly to get a more accurate prediction of your interest rate. While retirement calculators obviously cannot forecast the future with 100 percent certainty, they can be enormously helpful tools for giving you a starting point as you plan an overall strategy with your financial advisor.

Another benefit of retirement calculators is that they can objectify retirement in a way that seems real and attainable. If you don't know how much money you need to save, you have less incentive to keep putting money aside, particularly in your younger years. Retirement calculators force you to consider how your actions now will affect your standard of living once you retire. This is particularly true if you feel like you don't have much to spare each month for savings as it is. A personal financial consultant can help you examine your income and monthly expenses to see where you can cut back and how much you need to contribute to keep yourself on track.

Shortcomings of Calculators

Although retirement calculators can be an enormously helpful part of your overall retirement planning strategy, they can sometimes yield misleading results if you rely on them to give you exact figures. It's easy to forget that your results are only as accurate as your assumptions. A calculator can help you do the math, but an accurate forecast depends on realistic assumptions. This is where a professional financial advisor can help. The best assumptions are based on realistic long-term goals, using contribution amounts you can stick to and an honest assessment of the lifestyle you envision enjoying after retirement.

The rule of thumb used by most online tools is 75 to 85 percent of your income before retirement. While this might be reasonable for people who don't plan to change their lives drastically after retirement, an estimate this low could be dramatically off if you plan to spend your early retirement years taking golf trips, going on ski vacations and seeking other expensive recreational adventures. This kind of lifestyle could easily require 100 percent or more than your previous income. An extravagant lifestyle might not throw a hitch in your plans if you had planned for these expenses ahead of time, but unexpected living costs can become a big problem if you only saved enough to live on a fraction of your prior income. You might soon find yourself exchanging your travel plans for adventure books at the local library.

Retirement calculators can be helpful tools for predicting many factors related to your financial future, ranging from how much money you need to save for the future to what might happen to your nest egg if you change your monthly contributions. While no one can predict how long they will live or what unexpected expenses might derail their dream standard of living, a calculator can give you a ballpark idea of what you need to save for the future. A financial adisor can help you make your forecasts even more accurate by working with you to determine accurate assumptions.

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