As someone who maxes out her retirement plan every year and even saves beyond that in a brokerage account, I feel fairly confident that I’m doing my best to build up a decent-sized nest egg. And I know for a fact that I’ve sacrificed plenty to get to where I am with my savings today.
Still, from time to time, I like a reality check. So recently, I decided to use a few online retirement calculators to see if my savings are on track. And the results were basically the opposite of helpful.
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A massive shortfall — or a massive overage
Most online retirement calculators have you enter some basic information to see how you’re doing savings-wise. You’ll commonly be asked to plug in:
Your age.
Your current retirement plan balance.
Your annual income.
Your monthly retirement plan contribution.
Your desired retirement age.
From there, these tools will usually spit back a projection based on those inputs. Some calculators get a bit more sophisticated and ask you how much annual retirement income you expect to need, or what return you anticipate getting out of your portfolio. Others just make those assumptions themselves.
When I ran the numbers recently, I used a few different calculators to see what answers they’d come back with. One told me I was basically on track but might have a modest shortfall in the absence of adjusting my savings. Another told me I was basically right where I needed to be.
But then a third calculator warned that I may be at risk of ending up $3 million shy in retirement funds if I don’t start ramping up my savings rate immediately. Yikes.
I almost panicked — until I ran the numbers through yet another calculator that told me I had enough money to last throughout retirement with a $13 million overage. Yes, you read that correctly. There’s a tool out there that thinks I could save $13 million less for retirement and still be OK.
So, am I on track for retirement? Maybe. If I go by what these calculators say, it’s really hard to know.
And in case it isn’t clear, the inputs I used across all of these calculators were the same. I plugged in the same income, retirement plan balance, and so forth for each tool I used — and got a world of differing answers in spite of that.
Use online retirement calculators as a starting point only
An online calculator might tell you that you’re basically on track for retirement. Or, it might depress the heck out of you and tell you that you’re millions of dollars away from meeting your income needs.
As such, my advice is to use these tools as a starting point and nothing more. And rather than take what they tell you as gospel, make your own retirement savings plan. That might include:
Increasing your retirement plan contributions year after year
Aiming to save 15% to 20% of your income annually (or more) if possible
Investing your savings in a reasonably aggressive manner if retirement is far away
If you do these things consistently throughout your career, chances are, you’ll end up with enough money to enjoy retirement the way you want to. That’s my plan, at least.
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