Are you ready to start planning your retirement but can’t decide which retirement calculator/planner to use or what even constitutes a good calculator? There are so many calculators out there that trying to find the right one can feel like wandering through a maze. And if you choose the wrong calculator, you’ll short-change yourself with less-than-accurate predictions.
That’s why I’ve made my way through the maze and found the cheese on the other side, having examined dozens of calculators in order to find the key characteristics that make a good retirement calculator.
The best retirement calculators will incorporate all 5 of the following characteristics:
1. A complete set of inputs
Having the appropriate number of input variables to project an accurate and complete view of your future financial condition is probably the most important feature of a retirement calculator.
Too few input assumptions (less than five, for example) will lead to projections that are misleading. While the math may (or may not) be accurate, too few input assumptions produce misleading and incomplete projections. Most of the “Free” calculators out there fit in this category. Too many input variables and you’ll get bogged down in minute, tedious details that will not materially alter the projection.
Here are the necessary input variables that a good retirement calculator will incorporate:
Marital status (to accurately and automatically calculate federal/state taxes)
Your and spouse individual income/asset data and start/stop ages
State of residency
Social security
Federal and state taxes that are adjusted for inflation
Taxable, tax-free and tax-deferred assets
Annual recurring expenses
One-time expenses
401(k)/IRA withdrawals and contributions
Employment, work in retirement and retirement incomes
Two levels of annual inflation
Annual social security income COLA
2. Automatic calculations of complex, but critical input components
A user should never be required to manually enter an estimate for an input variable that can be calculated by the planner. A good planner will automatically calculate complex, but critically important variables such as federal/state tax rates and social security income at a specific month or age. Here are several variables that should be automatically calculated:
Social security at any month and age you enter, including divorced, spousal and survivor benefits
Federal taxes using inflation-adjusted brackets and deductible amounts
State taxes for all 50 states and DC
Federal and state capital gain and net investment income (NII) taxes
Early IRA withdrawal penalty
The social security earnings test
The amount of social security income to be taxed at federal & state level
Required minimum IRA distributions for both spouses
Asset withdrawal rate
Each state's age 65+ extra standard deduction
Each state's retirement income tax exemption
3. The ability to model various “what if” life scenarios
You can’t predict what happens in life, but you can be prepared for just about any emergency. Your retirement calculator should be able to easily and quickly model the impact of various “what if” scenarios, including:
Death of a spouse
Divorce
Big stock market declines
Delayed/accelerated retirement or social security
Manual entry of annual returns or run Monte Carlo Simulations
Increased/decreased expenses at future age
Deposit (inheritance)/withdraw assets at future age
Move to another state (with higher/lower taxes)
Sell/purchase home at a future age
Reinvest the annual returns or treat them as income
Allow the user to choose the order of asset liquidations
4. A user-friendly interface and understandable logic
All of the above functions and features should be combined into an intuitive, useable package. You shouldn’t have waste time trying to find out how to do something or where to input something. It’s frustrating to find what you think is a good piece of software only to discover that you can’t understand or use it. Here are some characteristics of a good user experience.
You should not be required to know finance (including Microsoft Excel and Apple Numbers) or understand complex financial terms to operate and understand the calculator.
Inputs that you often change back and forth when looking for the optimal combination that will maximize your retirement should be on the main page. Examples include start ages for retirement and social security. Having these on the main page eliminates the annoying need to page forward or backward (on a web-based calculator). Supporting data that feeds the main page can be on other pages.
You should be able to instantly and visually see the impact of any changed assumption in a clear, concise way on the main page.
You should be able to click a button to get information or help on any topic.
The software should provide real-time feedback that not only warns about an excessive user entry but also makes suggestions on how to maximize your retirement. You should also be able to “turn off” this automatic help.
5. A calculator that goes above and beyond
In addition to the above must-haves, a good retirement planner should exceed customer expectations in many aspects. Here are a few ways to do that:
In addition to a well-written User Guide that has easy-to-follow images, offer an in-person support phone line for when users get stumped.
Provide supporting worksheets that show how and why your assets increase or decrease each year.
Accurately projecting expenses is as important as selecting the appropriate annual asset return. Accordingly, a calculator should provide a detailed expense worksheet.
If there is a cost for the planner, there should also be a no-questions-asked money-back guarantee.
Have confidence in your retirement projections
Good retirement calculators are valuable planning tools, so don’t put your future financial prognosis in jeopardy with a sub-standard calculator. It’s important to select a retirement planner that will provide accurate predictions and will allow you to account for all of the relevant assumptions. If you use an inadequate retirement planning tool, you could end up with poor projections that may later lead to financial hardship.