The Best Online Retirement Income Calculators
Retirement calculators can be quite useful for planning for your financial future. However, as noted in the February 2016 research paper "The Efficacy of Publicly Available Retirement Planning Tools," "The advice provided from a majority of these tools is extremely misleading to households."
With so many to choose from, one retirement calculator may lead you to believe you will have thousands more in retirement income, while another may say you're likely to run out of money.
This issue is documented in the presentation "The Looming Problem with Retirement Planning Calculators" by the Retirement Income Industry Association.
So, how do you know which retirement calculator you should use? It depends on a few factors, including your life phase and how complex your situation is.
In the scorecard shown below, there are three main criteria for rankings: accuracy, usability, and education. Each calculator was assigned scores in each category, with 3 being the best. Accuracy was ultimately weighted at 60 percent of the final score, with usability and education each representing 20 percent.
Retirement Calculator Scorecard
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The accuracy component of the retirement calculator scorecard refers to the reliability of the results being displayed.
The worst mistake a retiree can make is planning only for the best-case scenario. After researching several online tools, it is evident that some present only the best-case scenario, which can leave users at risk of falling short of their retirement goals.
A calculator with a high score in accuracy will be versatile, meaning that it will offer a lot of various input options that allow you to customize the data in a way that matches your situation.
These options include, but are not limited to, inputs for Social Security, pensions, inflation, advanced expense scheduling, differing retirement dates between spouses, and more. The reason a versatile calculator is more accurate is because it is capturing more data points and minimizing the risk of a simplified output relying on inaccurate data.
Usability incorporates several components, such as ease of use and visual appeal. A tool that is hard to read is even harder to understand. Tools that utilize graphs in addition to numbers can be helpful, as visually seeing how the money comes and goes is easier for most people to understand.
Another key component to usability is the ability to easily modify inputs. A tool that allows for modification on the results page is especially useful because it prevents users from having to restart the entire process if they make a mistake or want to run an alternative plan. Also, having the option to save is always beneficial because you may underestimate the time needed to complete the process, or may need time to gather the right information.
The education component of the score consists of the tool's explanation of the methodology, help features, and general guidance.
A calculator that explains everything well but does not allow the user to easily find the explanation will not score well in this area. For example, sometimes the methodology is well explained, but it is hidden at the bottom of the website in a terms and conditions page. This placement renders it almost useless since most users will not read it or take it into account when completing the calculator.
Guidance is another important criteria in this category. While not present in most retirement calculators, guidance can be the most valuable part of the tools that do provide it. Guidance is usually displayed at the end of a program, or throughout the inputs page on the side of the page.
Tax Calculations in Retirement
Another problem with traditional retirement calculators is they often do not give you an accurate picture of what your after-tax retirement income will be.
It is likely you will pay taxes in retirement, and the amount of tax you pay will depend on many factors that most retirement calculators miss.
Although a retirement calculator is a good start, it's best to meet with an experienced retirement planner to help you develop a customized plan that fits your individual situation.