As American workers began to shoulder more of the responsibility for funding their retirement, retirement calculators proliferated across the internet. A Google search for “online retirement calculator” garners tens of thousands of hits. People are anxious about their retirement readiness, concerned about whether they will have enough money to last through their lifetime.
- There are many retirement calculators available on the internet, but some are better (or more confusing) than others.
- Having your financial information at hand will make using a retirement calculator quicker and easier.
- The T. Rowe Price Retirement Income calculator and the ESPlannerBASIC are two superior examples.
Understanding Retirement Calculators
A retirement calculator can be a helpful tool to steer you in the right direction for a comfortable retirement, but some of them can easily throw you off track. The most effective and useful calculators let you model different retirement scenarios, taking into account the variables that can affect how long your money will last, so you that you can save and invest accordingly.
The following free online retirement calculators do the best overall job we've seen of translating sophisticated retirement income planning methods into an understandable and easy-to-use layperson’s planning tool.
T. Rowe Price Retirement Income Calculator
The T. Rowe Price Retirement Income Calculator has been widely lauded for its strong emphasis on income planning, enabling you to project your monthly retirement income based on various planning scenarios. For each scenario it projects your monthly shortfall, if any, and shows the likelihood of your savings lasting throughout your retirement. It then offers options for making up potential shortfalls.
You can compare scenarios side by side while changing the variables and assumptions to see their effect. It also has a built-in Monte Carlo simulation tool to help you see how your retirement savings will fare in various market conditions. The major drawback is that it calculates for only one retirement age at a time. If you and a spouse plan to retire at different points, you would need to run two separate calculations.
For the level of sophistication this tool employs, the presentation is straightforward. The interview process is somewhat involved, but there is plenty of pop-up support along the way. You can expect to spend up to 20 minutes inputting data if you have all of your financial information at hand.
ESPlannerBASIC [this is now called MaxiFi Planner and appears to no longer have a free version]
Many retirement calculators do not allow for the varying tax consequences of different sources of income, which can have a significant impact on projecting your retirement income. The ESPlannerBASIC calculator allows for variable taxation that can help you work to achieve greater tax efficiency. It also allows for spouses to plan for two different retirement dates.
The first thing you may notice when using the ESPlannerBASIC calculator is the detail of the input screens. The added detail allows for greater flexibility in using planning assumptions. It requires some upfront reading to understand the process. You can choose from several different planning modes, such as Conventional or Economics, which are both free. It offers two other modes, Upside Investing and Monte Carlo, which you need to purchase. A self-help guide can be accessed by clicking on any underlined word.
Among ESPlannerBASIC’s best features.
- It provides separate inputs for the assets of each member of a couple.
- It assigns a different tax status to each asset, such as after-tax, pre-tax, no-tax, etc.
- It calculates income taxes automatically based on your inputs.
- It allows for variable inputs of expenses and income to account for temporary situations or anticipated changes in the future, such as downsizing, the sale of a business, an inheritance, paying for college, etc.
Once all the assumptions and variables are finalized, the program goes to work with a simple click. You may find the detailed output a little difficult to understand at first, but it provides several pages of numbers and graphs that begin to clarify themselves. The only real negative is that you have to assume age 100 for life expectancy, and you cannot specify the payout type for a pension, such as single life or joint life. Also, if you are not inclined to spend a lot of time reading and combing through financial details, ESPlannerBASIC may not be for you.
3% to 5%
The percentage of your assets that most calculators assume you can safely spend each year in retirement.
The Bottom Line
Online retirement calculators are good for determining how much you need to save to provide sustainable income for your lifetime, and the T. Rowe Price Retirement Income Calculator and ESPlannerBASIC are two of the best free tools. It is important to keep in mind that retirement calculators rely on accurate information and realistic assumptions. In other words, if you put garbage in, you get garbage out. Before using any planning calculator, plan to have all of your relevant financial and benefits information on hand and spend some time thinking about your goals for retirement.