Retirement Estimator is a very important tool in planning for your eventual retirement. When you quit working full time, you will need income from accumulated savings. This can be in the form of an Individual Retirement Account or IRA or a 401k or perhaps both in addition to regular savings. Social Security is in financial trouble and none of us under age 50 should count on it being there when we need it or in amounts that can make for a prosperous retirement. That is why planning ahead with a retirement estimator is so important. We want our golden years to be golden, not poverty-level existence. Putting away the right amount of money each month can ensure a prosperous time after our full-time work ends. You’ll be working over forty years and you deserve a good, relaxing time off.
What is Retirement?
Why is a retirement estimator so important? Because what do you want to do with your time when you aren’t working full-time? Do you want to hunt, fish, and enjoy the great outdoors? Do you want to move to Florida and golf every day? Do you want to buy an RV and travel the country? Maybe you plan to volunteer full-time for your favorite charity or cause. Or you’re just looking forward to spending time with your grandchildren. Some people even start new careers with all the excitement of a new venture without any of the financial hardship of an entry-level job. Whatever your retirement plans, you need to have the financial resources to achieve them. Green fees aren’t cheap and traveling to visit grandchildren can eat into savings. But with enough money accumulated these are not worries. But how do you know how much to set aside? That’s where a good retirement estimator comes in.
How it Works
A good retirement estimator considers many factors such as your current income, the income you require when you retire, the number of years before retirement, the expected or estimated return on investments, your benefits from Social Security or any work pension plans, and then the estimator calculates how much money you need to put aside each month to ensure your goals are met. There is a reason they are called an estimator and not a sure thing. Situations change. The rate of return on investments can be volatile and sometimes negative depending on the risk you’re willing to take. A retirement estimator can give you a good idea but nothing is certain. Use the estimator as a guideline not a bible. Again, Social Security is not in good financial health. In fact, neither is our entire government. Taxes may be increased or benefits reduced to meet the needs of keeping government finances stable. The estimator only can use data that is known today and unknowns, including unknown unknowns, are not possible for it to consider.
Other Considerations
If you use a Retirement Estimator, the rate of return can greatly affect the results. Use a very conservative rate of return to get the best possible answers. The days of 12% returns are probably over and a 5% or 8% return is the best that can be hoped for. This will mean you have to set aside more money each month. But it also means that if the rate of return does increase, you will be that much better off than the retirement estimator originally calculated. If you have a lot of years left until you stop working, you may want to put in a slightly higher rate of return since you should be willing to take more risk. But if you are going to retire soon, then a lower rate of return should be considered. The estimator is literally unable to think for itself and if you put in something ridiculous such as a 100% return, it will spit out a number based on that calculation, so it is up to you, the thinking human being, to put in accurate numbers and reasonable estimates.
Using a retirement estimator can be a great tool in planning for your time after your full-time job ends. You want to be ready to enjoy your golden years with the financial means to do so. An estimator can give you the numbers you need to make that happen. But it can’t make you put the money away. A good system is to set up automatic withdrawals either out of your paycheck or out of your checking account so that you don’t have to think about it or worry. And there would be no temptation to skip a month when things get tight because that can turn into two months, then three, and then you’re not making the payments. With the right planning, retiring can be the reward we all want it to be.