CBS News, April 21st, 2010
Google the phrase “retirement
calculator” and you’ll be deluged with hits. Every major financial
services company has an online tool to estimate how much money you need
to save for retirement. But a recent study by the Society of Actuaries says many popular
calculators have serious flaws. These potential hazards could lead to
serious miscalculations when you’re plotting your financial future.
The report analyzed 12 retirement calculators created by financial
services firms, software companies, nonprofits, and government for
consumers and financial planning pros. All but one of the six consumer
calculators were free: the Fidelity Retirement Income Planner, the AARP retirement planning calculator, MetLife calculator, U.S. Department of Labor and the T.
Rowe Price Retirement Income Calculator. ESPlanner, created by
Boston University economics professor Larry Kotlikoff, starts at $149
per year. Unlike the freebies, ESPlanner gathers more detailed data,
making its forecasts more reliable.
The free online tools, as a group, had a host of problems. “These
tools take a project that is fairly complex and boil it down to
something simple,” says John Turner, an economist and co-author of the
report. “They don’t ask you to consider a lot of important variables.”
Some free online calculators can, however, provide a decent starting
point for your retirement planning, as a MoneyWatch test found.
To get better results when you run your own numbers, look for the features MoneyWatch blogger Steve Vernon’s
recommends, and watch out for the following six areas where
retirement calculators may be getting it wrong.
1. Social Security Projections
Most retirees get a third or more of retirement income from Social
Security. Yet many retirement calculators don’t gather the detailed
information needed to project these benefits accurately, Turner says.
“They often project Social Security income using a bare minimum of
information: typically your current earnings, your age, and the year you
expect to retire,” he says. Although the size of your Social Security
payments will vary depending on when you decide to start collecting the
checks, Turner found that many calculators don’t analyze this choice in
So to get the best guess for your Social Security benefits, use the
Social Security Administration’s free online retirement
estimator, which will give you a personalized projection using your
actual earnings history.
Another problem: Turner found that many of the calculators low-ball
the increases you’ll get from Social Security’s annual cost-of-living
adjustment (COLA), which is pegged to the Consumer Price Index.
“Typically, the inflation assumptions are hidden from the user,” he
says. “But a few do reveal to you that, for unknown reasons, they use a
COLA that is less than the inflation rate.”
How does our retirement calculator measure up? At NewRetirement, we’ve crafted our calculator with these and other factors in mind, so as to provide the best estimates we can concerning your retirement future. Try it out and see.
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