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

Last Updated Jul 21, 2011 11:07 AM EDT

I'm a big fan of online retirement planning calculators. Far too many people just guess at how much money they need in retirement -- and most people guess way too low. Compared to figuring it out yourself with pen and paper, retirement calculators do the math for you, so you can easily analyze how much money you need to retire, how much you should save, and how much retirement income you can expect to get from your savings.

Many retirement calculators do an adequate job of helping you decide how much to save when retirement is far in your future, say, when you're in your 20s, 30s, and 40s. At that point in your life, all you need to do is get in the ballpark of determining how much to save, because there's so much that can happen between your early working years and retirement that you can't get very precise with the "how much to save" analyses.

When you get to your late 50s or early 60s, however, and you're trying to figure out exactly how and when you'll retire, you'll need more precision. And that's when many retirement calculators come up short. You'll need to use more refined retirement calculators, or know a few "work-arounds" to get the best answer to this important question: How will you piece together various sources of retirement income to cover your living expenses?

Let's take a look at five common flaws of retirement calculators and the work-arounds to fix them.

Next: Inflexibility in choosing your method of generating retirement income

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.