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We often hear about the importance of building a solid nest egg for yourself for retirement. And if he’s steadily pumping money into an IRA or 401(k) plan to that end, you might get to the point where you wonder, “Am I on track?” Hmm.
Luckily, there are many online tools that can teach you just that. Just search for “retirement calculator” and you’ll see a variety of options for plugging in your numbers and seeing how your IRA or 401(k) plan balance stacks up.
However, while these tools may seem useful at first glance, they tend to have drawbacks. Here are some reasons why I don’t like them at all.
Image Source: Getty Images.
1. Guess your spending habits
We often hear that you can expect to need about 70% to 80% of your previous income to live comfortably in retirement. But it’s a different story if you don’t spend all your income. In fact, a better rule of thumb is to assume 70% to 80% of what you need. spend I don’t earn money while I work.
For example, let’s say you earn $200,000 a year. Most retirement calculators don’t take it into account. Instead, they assume they want somewhere in the ballpark of $140,000 to $160,000 a year when they retire if they’re okay with a much lower annual income. and enter some numbers, you might get a message saying “It’s dangerous, you won’t make enough money later”, but this may be far from the truth.
2. We don’t always consider retirement income sources
Withdrawals from your IRA or 401(k) when you retire may eventually become your primary source of income. But that doesn’t mean it will be your only source of income.
You may be taking over the family business or getting paid. You may own an income property that will serve as an ongoing source of cash in your old age. Or you may be entitled to larger Social Security benefits than expected.
And when it comes to Social Security, there are retirement calculators that factor future benefits into your earnings, but these estimates are usually just guesses. As a result, we do not have a clear picture of how much annual income we can expect.
3. Using them can be very demoralizing
Many people who have saved enough for retirement have a lot of work to do when they enter their numbers into an online calculator and are told they are way off the mark, even when they really aren’t. But it can be really upsetting and demoralizing. Frankly, if you’re doing the fancy work of securing funding for an IRA or 401(k) plan, you don’t need that extra stress.
There is also a flip side. Some of these tools may tell you that you are doing well on the savings side. conduct, in fact, should catch up. That’s dangerous.
Don’t Overstock Your Retirement Calculator
Retirement calculators are designed to help, but unfortunately in many cases they don’t. To be fair, some of these tools are better than others, so it’s worth digging around and trying a few. You can enter additional data, such as your source of income after retirement, so you can better estimate your health.
After all, don’t panic if your retirement calculator warns you that you’re falling behind on the savings side. If you always have a large amount of money set aside for the future, trust it more than the calculator tells you.
But you can also sit down with a financial planner or advisor and get an expert opinion based on your specific goals and circumstances. It may bring you much-needed comfort if you’re worried about it.
And if you find that your savings are falling behind, the person will give you specific advice on how to increase your savings. Online calculators, on the other hand, might return information like, “He needs $1.2 million more if he wants to enjoy his retirement,” which isn’t very helpful.
The $18,984 Social Security Bonus That Most Retirees Completely Overlook
If you’re like most Americans, retirement savings are years (or more) behind. But knowing a few lesser-known “Social Security secrets” can definitely boost your retirement income. For example, one simple trick can pay you $18,984 more each year. I believe that once you learn how to get the most out of your Social Security benefits, you will be able to retire with peace of mind and confidence. Click here for more information on these strategies.
The Motley Fool’s U.S. headquarters has a disclosure policy.
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
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