5 Big Flaws of Retirement Calculators, and How to Fix Them

Flaw #5: Inability to reflect temporary and/or part-time work
Many people will need to work, possibly part time, for several years during their retirement, but it's likely that eventually you'll reach an age when you won't be able to work. So you might want to project your financial situation by assuming that you'll work for a certain period of years. Unfortunately, many calculators don't have the capability to show a temporary source of income -- they may only allow lifetime incomes.

Work-Around: Look for a calculator that allows temporary sources of income, such as work. Here's another band-aid: If you can't find such a calculator and think you'll earn a certain amount of wages in the future, count this amount as a retirement asset that will generate retirement income. For instance, if you think you'll earn $100,000 in wages in the next 10 years, then add $100,000 to your retirement savings. Admittedly this is a rough work-around, but it's better than nothing.

While I haven't done an exhaustive analysis of online retirement planning calculators, the Fidelity Income Strategy Evaluator seems to be the best I've seen so far, with the ability to overcome the flaws noted above. Other calculators that I've previously reviewed previously can also overcome these flaws, such as the calculators at www.RetirementWorks2.com and Agebander.com.

While refining your calculations might seem like a lot of work, remember that you're planning for your financial security for the next 20 to 30 years. It's worth taking the time to do the job right.

More on MoneyWatch:

• IRAs and 401(k): 3 Ways to Generate Lifetime Income
• Boost Your Social Security Payout by $100,000
• Social Security Strategies: How to Get $90,000 More for Your Spouse
• The Secret Formula That Will Make, or Break, Your Retirement
• Top Tips for Using Retirement Calculators
• How to Choose the Right Retirement Calculator for You

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