Last Updated Feb 5, 2010 11:45 AM EST
Can you trust online retirement calculators?
I have mixed feelings about the retirement-planning calculators available on the Web. You enter certain financial data and the calculators purport to tell you how much more you ought to be saving for your retirement. Their weaknesses are obvious. Some ask for data that are hard to get (if you have a pension, do you know how much it will pay when you retire?). Some ask for too little data to give you a meaningful result. You have to make loads of assumptions (What's the likely future inflation rate? How fast will your salary increase? What will you spend in retirement?) — as if you knew. A 1 percent change in your forecasted returns could add or subtract $200,000 from your projected retirement assets.
What good is that? A couple of years ago, Kiplinger's Personal Finance magazine put a simple case through five prominent online calculators: a married couple, with a simple savings plan, wondered how much retirement income they could expect their growing nest egg to deliver. The answers differed wildly.
On the other hand, using an online calculator shows a commitment to finding out what you're going to need to retire on. The answers may be different, but they give you a general sense of whether or not you have enough. Usually you don't, and the numbers you see are a wake-up call. Research has shown that people who use these calculators save more money than people who don't.
Excerpted from Making the Most of Your Money Now by Jane Bryant Quinn
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