Retirement calculators are tools that make financial calculations,
enabling the user to create approximates of how much money you will need
to save up for retirement. Created by financial service firms and
software companies as an option to ease the difficulties and confusions
people do when they attempt to calculate their estimates themselves.
Despite it being a great assistance to what is rather a complicated task,
there are many problems that this tool actually has, and can cause
serious consequences due to certain miscalculations by the calculator.
There are actually many variables that need to be explained, but with
these, the results are simplified to a single number that people end up
ignorantly relying on. Indeed, here are a number of problems in the
financial calculations that many retirement calculators have. Social
Security A majority of calculators do not ask for the detailed
information of your benefits, depending highly on your Social Security
income on its minimum information like current earnings, age, and
expected year of retirement. However, Social Security income can vary
greatly in the future, but this as well as assumptions of inflation tends
to be neglected by the calculators.
Rate-of-return Several calculators would set a default investment
rate-of-return, while there are some that will assume a certain
percentage of return based on the retirement plan you choose.
Unfortunately, a market's rate-of-returns can vary widely in time.
Neither does the calculator take into account that you might change your
investing habits in the future that can change the numbers rather
significantly. Life expectancy No calculator will ever be able to
estimate the exact life expectancy of each individual. Hence, some
calculators have default life expectancy numbers which usually neglect
important demographics like race, gender, and income; while others will
ask you to predict your own life expectancy based on your own family
history and health, which can be inaccurate without taking into account
the demographics, family history, and health. Surviving spouse Most
free calculators do not calculate the retirement income for a surviving
spouse. It is an important variable to calculate the couple together and
separately with different life expectancy, so that the one living longer
than the other does not run out of cash to survive. Most free calculators
tend to neglect this as a one scenario of a non-existent surviving
spouse. Housing info Retirement calculators have very few
assumptions of what you may possibly do with your house. There are many
real scenarios one can actually do, such as continue staying in them,
sell and downsize, or even liquidating. However, most calculators neglect
these possibilities. Inflation forecasts Although there are
some that includes a certain potential percentage of inflation, many
retirement calculators do not include inflation as a variable, otherwise
give a default percentage because it is too difficult to predict.
Read more details about related topics investment planning and choosing
the right investments.
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