What is the Difference Between a Simple Retirement Calculator and a Retirement Calculator?
Retirement calculator is a general term that refers to everything from simple tools to sophisticated planning platforms that easily rival the plans and information you can gain from a professional financial advisor.
However, the reality is that most retirement calculators you find online are simple, whether they are labeled as such or not.
What is the Difference Between a Simple Retirement Calculator and a Retirement Planner?
A reliable retirement plan accounts for every aspect of your current and future financial life. What are your current savings, income, and expenses? How will those change over time? And, how will you account for changes in your own life and the economy? A reliable retirement plan is a fairly sophisticated living document that should evolve with you and your goals.
Simple retirement calculators are good for quick estimates, but are not great for reliable planning.
Can You Trust a Simple Retirement Calculator?
You can usually trust that the simple calculations used in a retirement calculator are accurate. However, it is not personalized enough to your situation, values, resources, and goals. And, you don’t always know what assumptions are being used to do the calculation and whether or not those assumptions are relevant to you and your situation.
You probably shouldn’t make any big decisions based on a simple retirement calculator. Build a complete financial plan, instead.
What Are Simple Retirement Calculators Good For?
Simple retirement calculators are good for giving you a quick estimate. And, they are fun. However, planning your financial life with a simple tool leaves you and your lifestyle open to chance.
How do You Build a Complete Financial Plan?
You have options for building a complete financial plan.
Build your own spreadsheet: If you have a lot of financial expertise, this is a good option.
Use Complete Online Planning Tools: The NewRetirement Retirement Planner. is easily the most comprehensive and reliable planning tool. Our goal is to make planning affordable, understandable, and available to everyone. Access to our sophisticated but easy to use tools costs about $100 a year. You are sure to feel more confident about your ability to fund the future you want.
Hire a Fee Only Financial Advisor:You can have a financial professional help you with your plan. A fee only fiduciary advisor ensures that the guidance you receive is unbiased and in your best interests.
What Are the Benefits of Having a Complete Financial Plan?
Numerous studies have found that people with a reliable written financial plan:
Are More Confident: A written plan increases your confidence and reduces your stress. When you have a plan for how to use your money, you know what you need to do to live your best life.
Develop Better Financial Habits: When you have a written financial plan, you develop better habits. People with a plan are much more likely to save more, invest appropriately, avoid debt, and stay on track financially.
Have Improved Outcomes: The result of those financial habits? Better outcomes. If you have a financial plan, you are more likely to be able to achieve your retirement goals.
Everyone Should Have a Complete Plan (Not Just the Wealthy)
Some people seem to think that a simple retirement calculator is sufficient if you don’t have millions. However, research finds a written financial plan is especially important for households with low- and moderate-income levels, benefiting them tremendously.
How Many Inputs Should There Be in a Retirement Calculator?
This Simple Retirement Calculator uses 9 inputs and, like most retirement calculators, it relies heavily on assumptions. In the NewRetirement Planner
, you can use over 250 inputs, building a more personalized and reliable plan.
Your marital status is important when planning retirement because you presumably want to plan a secure future for yourself as well as for your spouse.
You and your spouse may have different life expectancies, retirement dates, income, savings, medical needs and more. A simple retirement calculator does not account for differences between spouses and usually calculates based on the household.
A more sophisticated tool like the NewRetirement Planner enables you to enter all inputs for each spouse.
Your Current Age and Retirement Age
Your longevity (how long you will live) and your retirement age are important factors in retirement calculations.
They determine the number of years you need to fund with retirement income and savings.
In this simple retirement calculator, your age is used to determine your longevity. However, in a more sophisticated retirement planner, like the NewRetirement Planner, you can input a more personalized projection for how long you will live.
Savings and Assets
There are many different ways to save for retirement. What’s key are the tax implications of the different savings vehicles. If you want to account for taxes in your retirement plans, then it is best to use a more sophisticated retirement planning tool
, not a simple retirement calculator.
401ks and 403bs plans: 401ks (the most popular way to save) and 403bs (like a 401k, but offered by nonprofits) are savings plans offered through employers. In many cases, the employer will match contributions up to a certain amount. The money you save is made with pre-tax dollars. And, funds are allowed to grow tax-free until distributed. Only distributions are taxed as ordinary income in retirement, during which retirees may fall within a lower tax bracket.
Individual Retirement Accounts (IRAs): As with a 401k, funds saved in an IRA are made with pre-tax dollars and grow tax-free. Taxes are paid when you take distributions.
Roth IRAs and 401ks: A Roth account is a type of 401k or IRA. Money in a Roth account grows tax free. Contributions to this account are made with after-tax earnings, but you owe zero taxes when you withdraw the funds — no matter how much the account has grown. (Another difference is that Roth IRAs do not have Required Minimum Distributions (RMD), although Roth 401ks do.) Learn more about Roths.
Other Savings and Investments: There are limits to how much you can save in tax advantaged retirement accounts. However, that doesn’t mean that you should limit your savings to these types of vehicles. Max out the tax advantaged accounts, but save (and invest) as much as you can.
The NewRetirement Planner enables you to specify different kinds of savings and will help you see appreciation and tax consequences.
Your Home Equity, an Important Retirement Asset
If you own your home, it is likely your most valuable asset. And, it should be considered as an important part of your retirement plan. Only a complete retirement planning tool like the NewRetirement Planner
will account for your equity and give you choices for how to utilize it for retirement.
Work and Social Security Income
There are many different possible sources of income. Most retirement calculators keep it simple and ask for one income number. This is problematic because there are usually varying start and stop ages for different income sources. This calculator asks for work and Social Security income, but explore other retirement income sources below.
Work Income: In a retirement calculator, work income can be used to extrapolate retirement income needs since people generally have similar income needs before and after retirement. And, it can be used to approximate your Social Security benefit.
However, work income can vary with time. Many people go part-time or do consulting after retiring from a long time career.
Ideally, you plan for actual income, not one general number.
Social Security: In this simple retirement calculator, your work income is used to determine your Social Security benefit, based on the age when you start benefits.
Other Sources of Retirement Income
Passive income is a popular strategy for funding retirement. Passive income is defined as an income source you benefit from without too much effort – rent from real estate, dividends on investments, a job you enjoy, and more… Learn more about passive income for retirement
Pensions: If you are lucky enough to have a pension, you will want to make sure you use a retirement calculator or retirement planner like the NewRetirement Plannerthat accounts for this valuable source of income.
Annuities: A lifetime annuity is an insurance product. In exchange for a lump sum of money, you purchase a guaranteed income stream. Learn more about annuities…
Inheritance or Windfalls: There is a lot of money passing between generations. When planning retirement, it is useful to think about future inheritances or other kinds of windfalls.
Withdrawals from Savings as Retirement Income
In this simple retirement calculator, your savings are being tapped to cover the difference between your retirement income and your retirement expenses. In a more sophisticated tool, you can build a more meaningful retirement income plan using your savings.
Assumptions (Rates of Return, Appreciation and Depreciation, Inflation)
There is a lot you can control when it comes to your retirement finances. However, there are also some economic factors that are outside of your control that will significantly impact your financial security.
This simple retirement calculator uses the following assumptions:
Inflation rate is 2%
Income growth rate is 3%
Social Security adjusts with inflation
Medical costs grow at 2.5%
Rate of return is 5%
Housing appreciates at 3%
You can input your own assumptions in the NewRetirement Planner.
Taxes are an important consideration when planning your retirement. You have many opportunities to reduce this expense. The NewRetirement Planner
enables you to see projections for your annual tax liability, taxable income and more.
How Much Do I Need to Retire?
The answer to how much do I need to retire is: It depends. It depends on how early you retire, how long you will live, how much you intend to spend in retirement, your rate of return on investments, inflation rates, retirement income sources and hundreds of other factors.
How Long Will My Money Last?
Your retirement savings can last your lifetime or just a day. It all depends on how much you withdraw and when. And, if you don’t blow it all at once, there are additional variables like investment returns and inflation that will impact how long your money lasts. To stretch your savings over your lifetime, you will want to plan a withdrawals strategy. It is also useful to track and manage a comprehensive retirement plan with a tool like the NewRetirement Retirement Planner.
When Can I Retire?
There are many factors to consider when figuring out when to retire — the emotional, social and intellectual concerns are actually as important as the financial. You should retire when you no longer require income from a job and when you have a plan for your time that is meaningful to you.
You want to be sure you can support yourself financially. However, you also want to be retiring to something, not just away from a job.
What is Financial Independence?
Financial independence is another word for retirement, assuming that retirement means that you no longer require income from work to support yourself.
FIRE (Financial Independence Retirement Early) is a movement around living efficiently and achieving financial independence — essentially another word for retirement. Adherents live frugally and save as much as possible so they can gain more control over their lives.
How Much Retirement Income Do I Need?
How much retirement income you need depends on how much you intend to spend and that can vary a lot over the 20-40 years you are retired. Developing a detailed budget for your future expenses can help you determine your retirement income needs, investment and withdrawals strategies and tax planning to reduce taxable expenses and figure out how to reduce taxable income. The NewRetirement Retirement Planner
can help you with these activities.
You might also want to check out how you compare to the average retirement income and learn about 18 different retirement income strategies for lifetime wealth and peace of mind.
What is my net worth?
Put simply, net worth
is everything you own minus everything that you owe. The typical American’s net worth at age 65 is $194,226. However, a big part of that number — almost three quarters of it— is home equity. If you exclude home ownership, the average net worth is only $43,921. That is probably not quite enough for a comfortable retirement. Compare your net worth to the average net worth plus the average savings, home equity and other metrics.)
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– exploring infinite possibilities between working, saving, investing, spending, leaving something behind and more.