Online Retirement Calculators: Helpful or Useless?
Earlier this year, financial services giant ING began a television and print advertising campaign encouraging all Americans to calculate "Your Number," which refers to the amount of money you will need to comfortably retire. Almost half of workers have diligently tried to figure out exactly how much they need to save, according to an Employee Benefit Research Institute survey. And simply doing the calculation caused 44 percent of workers to save more, EBRI found.
While saving more for retirement is always good news, crunching the numbers can be a frustrating and demoralizing experience. Heather Havrilesky, Salon's television critic, chronicles her experiences trying to calculate how much she needs to save for retirement in an article posted today.
Havrilesky calculated that she and her husband will need to save $93,397.05 annually to reach their retirement goal. "Unbelievable. Why doesn't it just say, 'You're screwed. Prepare to toil away for the balance of your days on earth?' " Havrilesky wrote. "Toying with retirement calculators was so exquisitely painful and such a profound waste of time."
The last time I wrote about retirement calculators, I received a similar reaction from an anonymous reader. "What a waste of time. [The retirement calculator] told me I had to save over $700,000.00 this year!" the commenter wrote.
Granted, Havrilesky was aiming for a combined income of $80,000 a year for her and her husband, which is an extremely hefty retirement income. Retirees in most parts of the country can and do get by quite comfortably on far less. Havrilesky, 38, and many other gen X-ers and baby boomers who haven't saved enough for the retirement lifestyle they crave will have to face the unpleasant reality of working longer or consuming less in retirement, if not both.
Working a few extra years doesn't have to be painful if you can find a job that you like with the added bonus of some flexibility. (Havrilesky's current writing gig certainly seems to have both.) And downsizing to a smaller house once the kids have moved out, moving to an area with a lower cost of living (Havrilesky lives in pricey Los Angeles) once you don't have to commute to a job, and sharing a single car with your spouse are fairly pain-free ways to substantially slash expenses. You can also get by on a smaller budget if you pay off your mortgage, don't have a daily commute, and eliminate other work expenses like professional clothing and lunches out. Of course, health and other sudden expenses are always the wild card.
Tell us, do you find online retirement calculators helpful or a ridiculous exercise in futility?
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Reader Comments
Futile is as futile does
The whole concept of "retirement" is becoming obsolete and by the time the newest generation hits "retirement age", it will be a not-so-nostalgic joke. The only thing a retirement calculator can do is tell you what you won't have or need should you decide you can actually afford to stop working.
Most people can't.
A lot of people don't want to.
Retirement once came after steady employment at one company for a person's lifetime. They worked their 20 or 30 or 40 years, got a gold watch and went off into 'retirement land'. Today, careers at a company are measured in months, often changing from one company or field to another, often with or without 401K's or some other form of 'retirement' savings that may or may not grow. It's a crap-shoot as to how well one's retirement will hold up and a hold-over from a generation ago when people really had to retire because they could not be productive in their fields of "habit". Today, almost anyone at any age can be productive and earn a wage doing SOMETHING, making retirement income much less necessary.
Further, with life expectancies stretching every year, and with medical breakthroughs to extend life a constant but unpredictable factor, calculating how much you need to save to retire on becomes a fiscal Russian Roulette when it can't be accurately predicted exactly how many more years an individual has left to live. Is budgeting and goal-oriented planning a good idea? Of course. But trying to predict how much of your income today should go into retirement (for those of us lucky enough to HAVE extra income that can be socked away) is merely an exercise in financial tea-leaf reading - and about half as accurate. Sure, you can predict based on a demographic, but retirement happens to individuals, not demographics. It's like predicting death in smokers. You know one third of them will die from a cigarette-smoking related illness, but you can't point to an individual and say they will.
Finally, research has shown that the more involved seniors are in life, and the more interested they are in what they do in daily activities, the longer they'll live. Sitting at home and vegging out usually ends up badly for seniors used to a lifetime of steady work. Having another income through work is mentally, socially and physically more beneficial than enduring a traditional 'retirement'.
Retirement calculators give financial planners an excuse for an existence, but little else. They certainly don't provide any real, or predictable, value to the people relying on them. Teach people how to budget, save for emergencies, and expect to keep working for the rest of their lives, unless they make enough money now to save for a specific time when they stop working.
Saving for a rainy day is useful. Calculating how much money you'll need to sock away in order to retire is impossible, and almost always an exercise in utter futility.
Retirement Calculators
I have tried most of the popular retirement calculators. My experience is that they are overly simplistic and provide misleading results. Often they are based on the 4% withdrawal rate rule which has wrongly achieved almost mythical status in the financial planning industry. Consumption smoothing should be the goal and that takes much more economic analysis than a cookie cutter retirement calculator can provide.
That being said, I would encourage readers to at least look for calculators that provide some sort of portfolio testing and scenario feedback. Firecalc and Financial Engines are two that come to mind.
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