To help avoid that frightening scenario, some of the top financial firms offer free online interactive calculators that aim to show how likely you are to reach your retirement savings goals (and what to do if you’re falling short). CBS Moneywatch.com just put six of the most prominent retirement calculators to the test (we don’t have our own yet), rating them on a scale of one to five stars. We found some true standouts and a couple of dogs.
Each calculator works a little differently, but here’s the general methodology: You typically enter your current income, anticipated retirement age, how much you’ve saved for retirement, and how much you expect to save annually. Based on that, the calculator usually makes an assumption about how much income you’ll need in retirement (typically using the financial planners’ rule of thumb of 70 or 80 percent of your expected salary on your last day of work) and how big a nest egg you’ll need to provide that income from the day you retire. Then, in most cases, the calculator uses what is called a Monte Carlo simulation, which runs your inputs through thousands of possible market scenarios, and predicts the probability that you’ll reach your goal. (In some cases, the calculator doesn’t show you the probability; instead it defaults to an assumption that you’d only be interested in results that had, say, a 90% or better success rate.)
If there’s a shortfall, the calculator offers alternate solutions: the extra amount you should save each month, how much less you should spend in retirement, how much longer you should work, or some combination of these.
In our tests, we assumed the role of a 40-year-old single man with $100,000 in annual earnings, saving $10,000 a year for retirement and planning to quit work at 66. His retirement stash now totals $125,000; 70 percent is in stocks, 30 percent in bonds. With those numbers, he likely won’t have enough to replace 70 percent of his income in retirement.
Here’s how the calculators rated — more or less in order from best to worst. We’ve also included some advice on using the tools to help ensure a comfortable retirement.
T. Rowe Price
- Bottom Line: The T. Rowe Price Retirement Income Calculator provides a clear picture for younger savers who are too far from retirement to know exactly how much they’ll be spending.
- Rating: ****
T. Rowe Price’s Retirement Income Calculator promises to tie you up for just about 10 minutes. It actually was quick and easy, asking just nine questions and doing some math that competing calculators require you to pencil out. For instance, T. Rowe Price estimates your future Social Security income (it assumes the government’s benefit calculations won’t change) and offers to adjust your asset allocation to a more conservative mix as you approach retirement. But it doesn’t get into specifics about your retirement spending.
T. Rowe Price told our man that he was behind the curve. Currently on track to have about $5,000 a month in retirement income, Price reckoned he’d need $5,833 a month in today’s dollars (the lower boundary of the planner’s 70 percent rule of thumb), to keep up his working years’ lifestyle. It suggested he boost savings contributions by $436 per month, to 15 percent of pay.
Fidelity
- Bottom Line: The somewhat complex Fidelity calculator is excellent if you’re facile with financial details, but might be frustrating if you’ll be trying retirement planning for the first time.
- Rating: ***
If you’re closer to retirement, say five or 10 years off, you’ll want a more tailored projection, so consider Fidelity’s Retirement Quick Check. Fidelity estimates it will take 30 minutes to run its numbers; be prepared to spend more like an hour or two. And here’s a minor annoyance: if you’re not a Fidelity customer, you can’t save your information, so any new sessions involve starting all over.
Unlike the T. Rowe Price calculator, Fidelity asks you to forecast your retirement costs and Social Security income. If you need help coming up with spending numbers, Fidelity offers a detailed budget, bringing you face-to-face with the cost of retirement. That’s a valuable tool even if you don’t use the rest of the calculator.
Fidelity determined our man could retire as planned if he saved just 10 percent of salary per year, far less than T. Rowe Price’s recommended 15 percent. Both calculators rely on the same simulation technique, and their portfolio allocations were about the same. The difference seems to be more-conservative return projections in T. Rowe Price’s model.
Vanguard
- Bottom Line: Although the “I’m preparing to retire” calculator isn’t like the other “video game” simulators that pop out numerical answers, it presents useful guidance.
- Rating: *** for the “I’m preparing to retire” calculator, but just * for the “I’m already saving or just starting to save for retirement” calculator.
There are two Vanguard Retirement Calculators. The one targeted at younger savers requires too much reading for the simple answers it yields. But the other one, for people retiring in five to 10 years, is excellent, offering worksheets and narratives on budgeting, Social Security, saving, taxes and inflation.
Charles Schwab
- Bottom Line: Not bad, if you’re willing to check and recheck your numbers.
- Rating: **
The Charles Schwab Retirement Savings Calculator is pretty simple, and very friendly (“Tell Us About Yourself,” it bubbled). But it had a misleading guideline for estimating our man’s retirement income: “[Enter] the difference between your current annual income (before tax) and the amount that you are saving annually.” In our man’s case, that would result in the calculator assuming that he needed 90 percent of his pre-retirement income once he left the work force, which is pretty high. As a result, Schwab bellowed in fire-engine-red type: Your Savings Plan Needs Adjustment, insisting he save 24 percent of salary—virtually impossible. But after we entered a more reasonable 70 percent income target, the calculator returned more appropriate advice: Raise annual savings contributions to 15 percent.
TD Ameritrade
- Bottom Line: There are better ones available, even if you’re a TD Ameritrade customer.
- Rating: *
TD Ameritrade Retirement Planner is quite simple—too simple, really. This calculator requires you to estimate just your retirement spending and Social Security income, but doesn’t ask how much you’re saving (no Monte Carlo simulators here) or even your current income. Consequently, the advice to our test subject was unnecessarily scary: Double your savings. The brokerage’s model assumes 4 percent annual inflation, which may be why it seems to demand overly aggressive investment portfolios in order to meet retirement goals.
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