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During the savings and retirement planning process, you may be tempted to use a variety of tools to see if you are on track. You will be presented with a number of free options to determine if you are on track.
At first glance, these online retirement calculators may seem very useful. But this is why I’m not really a fan.
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1. They make assumptions about your investment mix
Nearly every online retirement calculator I’ve ever used has asked me what my retirement plan balance looks like and how much I contribute to my account on a regular basis each month. But many calculators don’t look up my investment mix.and they are conduct When I ask how I am invested, I tend to narrow these options down to Conservative, Moderate, and Aggressive, even though there are actually many options in between.
If you have an IRA or 401(k) plan that heavily invests in stocks, it can generate much more growth than a bond-laden retirement plan. An online retirement calculator that doesn’t make at least that basic distinction isn’t worth using.
2. Guess about your spending
Online retirement calculators usually ask you what your annual income looks like. Based on that and your savings rate, they can predict your future income and tell you if that’s enough. But there is a big problem with this. In other words, the amount you earn each year is not necessarily the amount you spend.
For example, let’s say you make $300,000 a year and live comfortably on half that amount. When he retires, he might be able to maintain a nice lifestyle for a third of that amount. However, online retirement calculators typically don’t take into account your actual expenses, and can mislead you into thinking you won’t be earning enough in the future.
3. They often don’t take into account external sources of income
Many of the online retirement calculators I’ve played with have asked me how much money I’m putting into my retirement account. Others have asked me to estimate their Social Security benefits, or have calculated them for me. But most of these calculators don’t ask about income beyond that.
Many seniors choose to work part-time after retirement, and going that route can increase their income significantly. Similarly, you may decide to start a small business after retirement or own a second home that generates rental income when not in use. Some online retirement calculators take these factors into account, but many do not. In other words, the information they spew out is not accurate.
Use Online Retirement Calculators Carefully
Online retirement calculators can serve as a starting point in planning for seniors, but you can sit down with a financial advisor to run different scenarios for that person based on their specific circumstances, such as spending habits. We recommend that you Retirement goals, unique investment mix. By taking this approach, you’ll be less stressed and have a better idea of where you’re really standing.
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