Ask Stacy: Are Online Retirement Calculators Reliable?

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Retirement Calculator
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Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.

If you’re not typically a video watcher, give it a try. These videos are short and painless, and you’ll learn something valuable. But if you can’t deal with video, no problem: Just scroll down this page for the full transcript of the video, as well as some reader resources.

Today’s question is about retirement calculators; specifically, whether they’re worth your time.

Online calculators seem like a great idea. You input information — like your age, risk tolerance and the amount you’re saving monthly — and the calculator instantly tells you whether you’ll be spending your golden years partying or Dumpster-diving.

There’s only one problem: Unlike actual calculators, these “calculators” often give completely different answers for identical inputs. Here’s why.

I wrote an article years ago about why I hate all types of online calculators. See “5 Reasons Online Calculators Don’t Add Up.”

For more information on retirement planning, check out “7 Tips for Stress-Free Retirement Plan Investing” and “Ready to Rescue Your Retirement in 2018? Here’s How.” You can also go to the search at the top of this page, put in the word “retirement” and find plenty of information on just about everything relating to this topic.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Stacy Johnson: Hello, everyone, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson.

This question is brought to you by, serving up the best in personal finance news since 1991.

Here we go with today’s question. It is from Lisa. Lisa says, “I’m 46. I’ve been saving for retirement since 16. I’m confused how one retirement planning website says I will be way short on money for retirement, another says I’m going to have way too much and a third says I’m just barely going to make it. How can this be?”

Well, Lisa, this can be because these calculators are a bunch of crap.

In my second book, “Money Made Simple,” which I wrote 15 years ago, I compared using a simple method for investment allocation — one you can do in your head — to using a sophisticated online calculator. Guess what? My simple method came out with the exact same asset allocation as a complex calculator. Ever since that little experiment, I’ve placed little weight on these things.

Here are three things to consider when you’re looking at online calculators.

First, the longer the term the calculator is computing for, the less accurate it’s going to be. Why? Because retirement calculators force you to make assumptions. They say, “How much do you expect to earn? How long do you expect to live? When are you going to retire?” Even changing something as simple as 5 percent to 6 percent on how much you expect to earn can change the results radically when you expand that over decades of time.

What was Lisa? 46? The calculator is asking her to make assumptions that are going to occur 20 years from now. It’s no wonder these calculators come up with different answers.

This leads me to point number two: Calculators can be useful, but they’re really more of a novelty than they are a serious planning tool. I wouldn’t put too much weight on calculators — and don’t be surprised, Lisa, when they come up with different results.

The third point I want to make is when you make a plan — and obviously, we should try to plan for our retirement — be flexible.

Here’s a confession: I’m 62, and I don’t really have a specific plan. I know that may sound weird because this is the business I’m in, but I really don’t have one. I’ve simply tried to save as much as I can. It’s worked out: I’ve saved enough so I can retire tomorrow. But the reason I don’t have a solid plan is because my life has changed in ways I couldn’t possibly foresee.

For example, when I was 57, I married someone 23 years younger than me. That changed everything. My wife loves her job and will continue to work, which means I might as well continue working, too. Who could see that coming?

Another factor: My business makes way more money some years than other years, which makes it basically impossible to get specific when it comes to creating a long-term plan.

Bottom line? I don’t rely on calculators or create specific benchmarks. I max out my retirement plans every year. I put aside as much money as I’m able and then I let the chips fall where they may. For me, that’s worked out pretty well.

I hope that answers your question, Lisa.

Let’s close today with our financial expression of the day. This one comes from Dorothy Parker. It’s one of my favorites.

“If you want to know what God thinks of money, just look at the people he gave it to.”

Like that one? Spread it around today and be sure to be back here next time.

Make it a profitable day!

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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