I have been surfing the web a lot in the last couple of years to find the best resources to help with financial planning. There is a lot of information out there (except for information on the topic of my book, saving taxes!).
Here are my recommendations for (free) websites that help answer the question: How much do I need to save for retirement? Or put another way, How much can I spend in retirement based on what I will save? Basically, these calculators input your assets and income sources in retirement and output either 1) how much annual retirement income you will be able to spend until a target age of demise, or 2) how many years your assets will last based on your target annual retirement income (Spoiler Alert: you’re going to die either way).
Warning: No calculator is perfect
There are a lot of websites that claim to help answer this question. But most of the tools I have seen are deficient in important ways. For example, they ignore Social Security or pensions. Or they force you to tie your income in retirement to your income in your final working year. Virtually all of them assume you will spend the same every year in retirement, whereas the reality is that most people don’t spend as much on themselves. For example, a couple in their 60s might take a snorkeling trip in the Caribbean, whereas when they are in their 80s they might skip the fins (and travel costs) and find activities close to home.
Most of these deficiencies skew the calculators into requiring more savings for a given initial retirement income than may be needed. My conspiracy theory for a motive for this is that the investment companies who sponsor the calculators want you to give them as much of your money as possible, so of course they are not going to underestimate the savings you need to give them to reach your target income. Alternatively, maybe they skew conservative because they don’t want you to be mad at them if you rely on their tool but run out of money in (for example) the year 2049 instead of (for example) 2052. Color me more of a conspiracy theorist, but either way the calculators are by no means perfect.
Also, even if the calculators themselves had no flaws, the large number of assumptions that must be made guarantees an imperfect result. For example, part-time work or side income for either spouse in retirement may be hard to predict, may change over the retirement years, and may have a significant impact on how long their savings will last. Not to mention assumptions relating to rates of return on investments, inflation, and interest rates are more likely to be wrong than right.
Use them anyway
Despite their imperfections, these calculators provide significant guidance in approximating how much you will be able to spend in retirement. They are certainly a lot better than nothing. Moreover, to use the strategy outlined in my book, knowing your approximate, projected expenses per year will be helpful. Most of the same information needed to use most of these calculators will be needed when you use my Retirement Tax Saver tool. So add a benefit to using these other calculators: they provide a handy starting point to saving taxes using my book and website.
Criteria for the best free online retirement tool
–Is it powerful enough to allow for variations in income sources including Social Security and pensions?
–Is it flexible enough to allow you to, for example, run numbers using different desired incomes and retirement ages?
–Is it easy to use?
–Are the results easy to understand and useful?
After free registration with your email, you get two options: Quick (2 minutes) and Comprehensive (8 minutes). (Warning: If you don’t think more comprehensive planning for retirement is worth an extra six minutes, you might want to rethink that).
Pros: My favorite free calculator. It’s easy to edit, asks all the most important basic questions, and has decent default values. It also lets you dig in deeper after giving initial values, for example regarding when to claim Social Security. Bonus: Newretirement.com has other good information about retirement planning and preparation, mostly financial and but also nonfinancial.
Cons: Lots of teasing about additional features if you use their PlannerPlus product ($96/year, but perhaps worth it). Outputs are extensive but complicated.
Pros: Nice user interface where all information is visible. It factors in pension and Social Security and allows customized income in retirement. There are no teasers for paid products to clutter the interface. It has simple, easy-to-understand outputs. Unlike many websites, here there is no need to input your email to access the calculator.
Cons: The outputs are more limited than Newretirement.com.
3. Other websites: the rest are more limited in inputs or outputs or have more confusing interfaces to me. But there are plenty of others to try:
a. The big companies:
All have retirement calculators that are decent, but they are not as good as the two listed above in my humble opinion. The vanguard.com user interface for inputs is perhaps the most intuitive and easy to use.