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Retirement calculators are a handy tool for playing with possibilities for retirement, but this is not a one-time exercise. You should crunch the numbers on a retirement savings calculator ever couple of years or so to stay abreast of changing conditions. In addition, you should also check out life expectancy calculators that are available online as a way of both estimating your life expectancy and taking steps to extend it.
Retirement calculators are handy tools, but simple retirement calculators can provide misleading results. Try using a simple retirement savings calculator as a "dry run", but then look for something more sophisticated as your retirement investment savvy improves. For instance, a sophisticated retirement income calculator can account for increasing the size of your contributions to retirement savings, allow for tax sheltered annual contributions, and project inflation rates--all of these are factors that could significantly affect your bottom line.
Many financial web sites offer an online retirement calculator to use in experimenting with retirement strategies. The typical retirement planning calculator will want to know several things in order to give you reasonable results, such as your current savings balance, annual needed retirement income, the expected rate of return on your investment portfolio (for stocks or mutual funds you can find this in a prospectus), other income you may have available for retirement such as Social Security, the inflation rate, your current age, your tax bracket, and the age at which you plan to retire. Pulling together these number can be a useful exercise in itself because it prompts you to review and perhaps re-evaluate your current strategy before you even touch a retirement income calculator.
As you experiment with a retirement calculator, keep in mind that not all of the numbers are fixed. For instance, if you take a hard look at your expenses and find ways to trim them, a retirement planning calculator may show that you can retire sooner than you thought. Planning for retirement involves more than just saving and investing.
|Jennifer Mathes, Ph.D.|