Given what's at stake when it comes to retirement planning, I am a big believer that sitting down with a qualified financial planner is a well-spent splurge. Not to necessarily hand over the reins. But just to have someone else -- who thinks about retirement planning for a living -- run through the numbers and scenarios with you and see what tweaks might be in order.
Now that said, I also think that quality on-line retirement calculators can be great resources as well. For serious retirement planning DIYers they can give you a solid sense of where you're at. Or at a minimum they help focus what you'll want to review with that financial adviser.
Calculate: How Am I Doing?
Plenty of retirement calculators make faulty assumptions, and just to repeat myself one more time: there's no substitute for sitting down with a top notch planner who can carefully run the numbers and the scenarios that are specific to your situation. But there are still some really good retirement calculators to help you measure whether your retirement plan is on track.
- T. Rowe Price Retirement Income Calculator. This all-in-one calculator can be used to explore your situation at any of three different life stages: If you're still deep in savings mode, if you're "transitioning" and thinking about beginning to take some withdrawals, and if you're already retired. The focus with this calculator is how you can increase the odds you won't run out of money in retirement.
- Fidelity myPlan Snapshot calculator. This tool is good for those with retirement planning ADD; it asks five quick questions before spitting out a graphic of how you're doing. An interesting feature is that you're given two different scenarios. As the screenshot below shows, the tool calculates your status if market returns going forward are poor, or just average. It's the first time I've seen a New Normal featured in a retirement calculator.
Source: Fidelity myPlan
Calculate: How Long will I Live?
One of the reasons I like those first two calculators is that they both set the default life span beyond age 90, which strikes me as the safe way to plan around life expectancy. Of course, there's no Magic 8 ball that can tell us our exact end-date, but understanding your actuarial odds can be instructive.
- The Social Security Longevity Calculator. Plug in your birth date and gender, and the actuaries at Social Security will tell you your current life expectancy, as well as your life expectancy if you are alive at age 62, your full retirement age (between 65 and 67), and age 70. As my blogging colleague Steve Vernon explained, planning to run down your retirement funds by your average life expectancy is a big mistake. Remember, life expectancy data are not a prediction of when you will die, but reflect the odds (50 percent) that you will still be alive at a certain date. And if you are still alive, your life expectancy resets again. For example if at age 65 you have a 20 year average life expectancy that means there's a 50 percent chance you will still be alive at 85. And according to this Social Security table, an 85-year-old today has an average life expectancy of five to six years.
- The Lifespan Calculator. Generate a personalized life-expectancy estimate based on your health and habits. As I found out, it can be a sobering look at how long your retirement assets might need to support you.
Calculate: How Will Delaying Retirement Help?
- The New Retirement Illustrator. This Merrill Lynch calculator will show you how continuing to work for a few more years past the traditional retirement age can have a big (positive) impact on your retirement security. The premise of the tool is that you won't continue to save for retirement in your "transition" years, but that by earning an income that can fully (or partially) cover your living expenses in those years you can reduce what you'll ultimately need in your retirement funds once you do completely exit the work force
Calculate: How Much Guaranteed Income Can I Buy for Retirement?
It's beginning to dawn on pre-retirees that one of the big hurdles in retirement planning is how to convert a 401(k) and IRA portfolio into a steady-and sustainable-income stream for two or three decades. That's likely to raise the profile of immediate annuities in the coming years.
- The Immediate Annuities calculator provides an estimate of the income you could lock in if you chose to convert some of your retirement assets into a fixed-payment annuity. A nice feature of the website is that you can also input a desired income stream in retirement and get an estimate of what size lump sum it will take to generate that payout from an immediate annuity. These of course are only estimates, but as with all online tools, they are a great place to start learning how to secure a comfortable retirement.
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