Results from online different financial calculators do
not match. Why do the results
differ? Usually, it is because different
assumptions were used. That is, the
calculators control the variables in different ways.
Performing complete and accurate calculations well is
difficult, and thus designing a web-based calculator can be expensive. The variables a retirement calculator must
address include rate of inflation, rate of return on investment, life
expectancy, how much of current salary you need to support yourself at
retirement, and social security benefits.
Some calculators offer Monte Carlo simulations
to help you predict your retirement funding.
On this, my vote is to ignore the Monte Carlo simulation for the same
reason many websites will tell you not to count on past returns as to predict
your future investment results.
Some calculators allow you to alter their
assumptions. However, none of them is
able to accommodate either decreasing spending in later years, which is typical
of most people during retirement, or the cost burden of major health
problems. Any attempt to address these
issues would be quite costly.
Others take an easy out by limiting variables, e.g.,
keeping your contributions flat. This
facile solution provides little insight into what your retirement savings will
actually look like because it ignores your ability to save more as your income
increases. Also, by assuming flat
contributions, your need to act will look more urgent due to the big shortfall
in saving to meet your retirement goal.
The company using this assumption may hope you contact them to help you
solve the retirement problem that their formula, in part, has created. A calculator that assumes annually increasing
savings makes more sense.
In the end, using any of these calculators gives you a
sense of where you stand //vis a vis// your retirement goal. If you are far off, it gives you impetus to
act so you get on track; and if you are on track, then you it gives you a sense
of security. For me, the most important
result from using any calculator should be assessing and sticking to a good
strategy for saving and investing with a long-term perspective.
Here are links to the most popular retirement
calculators, which will come up in a web search:
If you don’t find what you want, let me know!