:max_bytes(150000):strip_icc():format(jpeg)/shutterstock_145835414-5bfc3b3946e0fb0026059b06.jpg)
Retirement Calculators: Overview
As Americans began to shoulder more of the responsibility for funding their retirement years, retirement calculators became a popular tool to help people achieve their goals. A Google search for “online retirement calculator” garners tens of thousands of hits.
In this article, we look at two popular retirement calculators available online. They do the best overall job we’ve seen of translating sophisticated retirement income planning methods into an understandable and easy-to-use planning tool.
Key Takeaways
- Online retirement calculators help you estimate how much you should be saving and track your progress toward your goals.
- We found the T. Rowe Price Retirement Income calculator and the MaxiFi to be two superior examples from the many available online.
- There are many online retirement calculators available, but some are better than others.
- Having your financial information at hand will make using a retirement calculator quicker and easier.
How Retirement Calculators Work
If you’re going to use a retirement calculator, there are some key facts you’ll need to have ready. They include:
- Projected age of retirement
- Annual income
- Any income you expect to have when you retire
- Current retirement savings
- Whether you plan to work during retirement
- Where you plan to live after retiring
- Investment style
- Estimated living expenses
Once you plug in this information, the calculator will crunch the number and give you an idea of whether you’re on track to meet your goals or which direction you need to take to achieve them.
The most effective and useful calculators let you model various retirement scenarios, taking into account the variables that can affect your after-retirement expenses so that you can save and invest accordingly. For example, you can run the numbers based on downsizing versus staying in your current home.
T. Rowe Price Retirement Income Calculator
The T. Rowe Price Retirement Income Calculator is widely lauded for its strong emphasis on income planning. You can estimate your monthly retirement income based on various planning scenarios. It projects your monthly shortfall for each scenario, if any, and shows the likelihood of your savings lasting throughout your retirement. It then offers options for making up for potential shortfalls.
You can compare scenarios side by side while changing the variables and assumptions to see their effect. It also has a built-in Monte Carlo simulation tool to help you see how your retirement savings will fare in various market conditions.
The major drawback is that it calculates only one retirement age at a time. If you and your spouse plan to retire at different points, you need to run two separate calculations.
The presentation is straightforward for the level of sophistication that the tool employs. The interview process is somewhat involved, but there is plenty of pop-up support along the way.
You can expect to spend up to 20 minutes inputting data if you have all of your financial information at hand.
MaxiFi Planner (formerly ESPlanner)
Many retirement calculators do not allow for the varying tax consequences of different sources of income, which can have a significant impact on projecting your retirement income. The MaxiFi Planner accounts for variable taxation, which can help you achieve greater tax efficiency using Monte Carlo simulations or other financial models.
It also allows spouses to plan for two different retirement dates, a notable flaw in the T. Rowe Price calculator.
The first thing you may notice is the detail of the input screens. The added detail allows for greater flexibility in entering planning assumptions.
The MaxiFi Planner requires some upfront reading to understand the process. You can choose from several different planning modes, such as Conventional or Economics. It offers two other modes, Upside Investing and Monte Carlo, which you need to purchase.
A self-help guide can be accessed by clicking on any underlined word.
MaxiFi has the following noteworthy features:
- It provides separate inputs for the assets of each spouse.
- It assigns a different tax status to each asset, such as after-tax, pre-tax, and no-tax.
- It calculates income taxes automatically based on your data inputs.
- It allows for variable inputs of expenses and income to account for temporary situations or anticipated changes in the future, such as downsizing, the sale of a business, an inheritance, or paying for college.
Once all the assumptions and variables are finalized, the program works with a simple click.
You may find the detailed output a little difficult to understand at first, but it provides several pages of numbers and graphs that are easily clarified. The only real negative is that you have to assume age 100 for life expectancy, and you cannot specify the payout type for a pension, such as single or joint life.
And, if you don’t want to spend a lot of time reading and combing through financial details, MaxiFi may not be for you.
Fast Fact
Most online calculators, including the one from T. Rowe Price, are free. But MaxiFi services come at a cost. The options include a $109 Standard plan for an annual household subscription (renews at $89 per year), a $149 Premium plan for an annual household subscription (renews at $109 per year), and up to $599 annually for financial advisors (renews at $459 per year).
How to Save for Retirement
One of the biggest hurdles that most people experience when it comes to saving for retirement is starting the process. But there are certain things you can do that can take the guesswork out of saving.
You can accomplish this by enrolling in programs that allow you to save using automatic deductions. For instance:
- Enroll in an employer-sponsored plan, such as a 401(k) or 403(b). You choose how much you want to stash into your retirement account. Your employer deducts this amount from your paycheck on a pre-tax basis, if it’s a traditional plan. If it’s a Roth plan, you pay the taxes up front. Both varieties have tax advantages and, if your employer provides a matching contribution, you get extra money for your retirement fund.
- If you are self-employed, you can opt for an individual retirement account (IRA) and get similar tax benefits to those available through an employer-sponsored 401(k) plan.
- Open an emergency fund. You can choose from a range of options, including savings accounts and short-term certificates deposit (CDs). You can have the money transferred from your checking account automatically each time you get paid. Once you have a high balance, you can earn more by putting the money into investments that yield better returns.
If your age is preventing you from saving for retirement, remember that it’s never too late to start. Keep in mind that you’ll probably need to save more the later you start.
Consider speaking with a financial professional to help guide you in the right direction. They can assist in choosing the right investment mix to help you meet your goals and stay on track.
How Much Should I Save for Retirement?
That depends on a few different factors, notably your age. If you start saving in your 20s, you can probably afford to save a little with each paycheck because you have a long time horizon to meet your goals. But if you start saving in your 40s, you’ll probably need to stow away more in your retirement accounts.
Fidelity suggests putting aside at least 15% of your pretax income to meet your retirement goals. But consider this figure to be a guide as it may be fairly conservative for your needs.
It’s always best to talk to a financial expert who can help you with your retirement planning.
When Should I Start Saving for Retirement?
Ideally, you should start as early as possible to give your savings the most time to grow. Compounding works miracles over decades.
If you’re in your 40s and you haven’t started saving, start now. You may have to put aside more than you would have if you were younger, but you’re in your peak earning years.
What Are Some of the Easiest Ways to Save for Retirement?
One of the easiest ways to save for your retirement is by taking advantage of an employer-sponsored plan like the 401(k). If you’re self-employed, consider opening an individual retirement account (IRA) at a bank or brokerage.
Don’t forget to build up an emergency fund separate from your retirement savings. Consider automating a transfer from your checking account to savings with each paycheck.
The Bottom Line
Online retirement calculators are good tools for estimating how much you need to save to provide sustainable income for your lifetime. The T. Rowe Price Retirement Income Calculator and MaxiFi Planner are two of the best tools.
It is important to keep in mind that retirement calculators rely on accurate information and realistic assumptions. It’s the old software coder’s mantra of “garbage in, garbage out.”
Before using any planning calculator, plan to have all of your relevant financial and benefits information on hand and spend some time thinking about your goals for retirement.
