No projections are perfect. Scientists can only estimate the temperature of the sun’s surface or when deadly weather may hit populated areas. Retirement calculators have their own margins of error. These helpful tools can only do so much to help plan your financial future, and knowing the missing pieces will help you hypothesize more precisely.
Social Security
Some folks may not be relying too heavily on the shaky social security system, but online calculators don’t usually factor in this type of retirement income. In 2011, 55 million Americans will receive $727 in these benefits. Forty-one percent of the average elderly person’s income is dependent on social security and 12 percent of the benefits paid out are to those who are receiving funds as a beneficiary for a deceased worker. Retirement calculators do not include this income because it is relative to each individual. Free online services provided by the social security administration will estimate your earnings, which you can use as a reference while planning for retirement.
Life Expectancy
Planning your expiration date is as reliable as letting your dog calculate your retirement earnings. Online retirement calculators usually don’t bother with these figures because there are so many variables involved in a person’s life expectancy. The center for disease control uses demographic indicators like race and gender to analyze death rates. The CDC claims the average life expectancy for an American is 77.9 years. How many extra months is .9? A typical 65 year old can expect to live another 18 years or so. One variable, your family history, can mess this estimate up. Trusting a calculator to measure this data creates invalid results.
Inflation
Few online tools account for inflation, which is constantly on the rise. The dollar just isn’t worth as much as it was ten years ago. The Federal Bureau of Labor Statistics has a comparison calculator which provides examples, like a dollar in 1981 is compared to a precise $2.47 today. As this rate continues to fluctuate, retirement calculators can only estimate changes. When it comes to what your savings is worth, that estimation is a fairytale. It just isn’t real.
Spouses
You probably love your spouse dearly, and you may notice there may not be an extra box beside your stats on an online retirement calculator. Too many numbers makes for a sticky situation, especially when your spouse may not retire at the same time as you. You may even notice some annuity calculations don’t offer an option with survivor’s benefits. Make sure you do the extra work to calculate for each individual and for both of you as a married couple.
Retirement planning requires a lot of hypothetical problem solving. While retirement calculators are an often free and helpful tool, they aren’t able to account for everything. They aren’t magical, just estimators.
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