# How to Pick a Good Retirement Calculator

October 7, 2008
• Comment (3)

We’ve been talking a lot about retirement calculators lately, but how do you pick a good one? A Web search for “retirement calculator” will bring you all kinds of free, online tools. But not all of them are equally useful. Some ignore inflation while others assume an overly optimistic view that income will grow by 3 percent a year or that the rate of return on investments will be 10 percent.

I prefer calculators that let you decide all the variables. They require more effort, but then you can see for yourself how a rate of return of 6 percent, or 3 percent, would affect future retirement income. Here are other factors to look out for:

• Life expectancy. Some calculators actually ask you to guess how long you will live, as if anyone knows. Others assume a life expectancy of 85, which I think is equally foolish, given today’s longer life spans. I prefer calculators that assume a life span of at least 95.
• Replacement income. While financial advisers have long suggested a replacement income of 80 percent, that may be too low, given rising healthcare costs. A goal of replacing 100 percent of one’s preretirement income is the more conservative choice.
• Inflation. Some calculators assume either no inflation or a very low inflation rate. Given how current food prices have shot up, that may be overly optimistic. I like calculators that let you choose the rate of inflation or use a conservative estimate, such as 3 to 5 percent.

### LISTEN NOW: Using Online Retirement Calculators

Over the weekend, I spoke with WTOP radio in Washington, D.C., about why retirement calculators can be helpful and what to look for when choosing one.

If you want to play around with one, check out the new calculator that T. Rowe Price just released. It asks a lot of detailed questions, but I think it’s worth the effort.

Tags:
retirement

So you really believe that I must replace 100% of my current income? How about the 25% I'm currently placing into my 401k and other investments? Wouldn't that mean I only need to replace 75%? How about the 529b fund for my sons college? Do I need to include that forever too? (assuming of course he doesn't get a college degree and then move back in).

Why 100%? It would seem that with reduced housing/smaller home needs, no contribution towards retirement once I'm there, I should safely be able to live as well as today on 70-75%

Kimberly:

I live in an area of the east coast with a high cost of living and my salary is comparable to others who live in my area--if not a little higher. However my plan is to retire to a part of the country that has a more reasonable cost of living (one of the southeast states). When I use the usual retirement calculators that ask me to input my current income needs the results tell me I need to be saving far above what I think I will really need. Is there a calculator you would suggest I use given my situation? Should I calculate my current income based on what it would be cost to live in that area right now and use that figure for that calculation?

Kimberly.....trip to Greece?? You didnt lose that much....I am in the hole \$790,000..since OCT 2007......this little bear market goes on forever, but I told myself when investing...you may lose 90% of it...even in the most stable no load AAA rated funds. The blood in the streets theory is worthless.....the streets have been covered with blood the past 300 trading days.

We all may have to live frugally, cheap and forget steak and vacations...be satisfied with a 10 years old car.

#### Alpha Consumer

Kimberly Palmer, senior editor for U.S. News & World Report, writes about making smarter financial decisions. She’s the author of The Economy of You: Discover Your Inner Entrepreneur and Recession-Proof Your Life and Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.