Use Online Retirement Calculators to Check Your Work

Welcome back!  If you’ve read my blog posts up to this point, you should have a pretty fair idea of your financial fitness for retirement:

• Do you (or will you) have enough money to retire (see this post);
• How should you manage your money once you stop working (see this post);
• When should you begin taking social security retirement benefits (see this post and this one); and
• How can you protect yourself from things that might go wrong (read this post)?

You may have reassured yourself that you’re financially on track, or perhaps you’ve identified some weaknesses in your plan that need shoring up. 

But how do you know you haven’t made some egregious mistake in your assumptions or calculations? Fear not!  Below, I recommend several excellent, free online retirement calculators where you can check your work.  (I have no financial or other interest in any of the tools or websites mentioned in this post.) I have not introduced these until now because I think it’s useful for people to do their own analysis first so you know going in what you think is a reasonable financial projection. 

For those impatient to know the bottom line, my favorite calculators are:

• the Vanguard Retirement Income Calculator;
• the T. Rowe Price Retirement Income Calculator;
• the Fidelity Planning and Guidance Center; and
• FIRECalc: How Long Will Your Money Last?

A Few Words of Caution

Some web-based tools are so slick and easy to use that it’s easy to forget that 90% of what’s going on inside the black box is invisible.  You’ll likely find that some sites give results consistent with your own analysis, while others are wildly different for reasons that may be mystifying.  Figuring out why is akin to debugging a computer program – except that the fancy behind-the-scenes algorithms are often not explained or documented. 

Don’t assume that because a calculator has good-looking results (such as colorful graphs and pie charts showing your financial fate) or sounds good (“10,000 simulations are now running to project the probability that your savings will last”) that its output is accurate or means what you think it means.  Be skeptical, and compare several calculators’ results against one another and against your own calculations.

What Makes a Good Calculator – My Criteria

In my reviews, I favor calculators that are easy to use — and difficult to screw up; whose underlying assumptions and methods are at least somewhat explained; and whose output is clear (often graphical), accurate, and hard to misinterpret.   Bonus points are given for a nice interface and educational tips or links. 

Some calculators are extremely simple and take five minutes to complete, while others are more complex, giving you more flexibility to enter real-life data in which spouses are different ages, retire or start social security at different times, and so forth.  Simple is not necessarily worse than complex; it’s hard to make mistakes when you enter only five data points, while a calculator that allows you to enter your own life expectancy or expected rate of return can really get you in trouble if you enter the wrong assumptions.  A brief example:

One well advertised calculator was nicely laid out, asked lots of detailed questions, and provided helpful educational information and links.  However, once I had completed the online questionnaire, the calculator did its magic and, to my surprise, informed me that I would likely run out of money.  This was the only calculator out of more than a dozen that gave me this result.  How could this be?   After some puzzlement and study, I finally ferreted out what was going on.  The site’s interview asked the user to enter inflation assumptions – a best case and a worst case over the planning horizon.  Later, the program asked the user to enter an optimistic and pessimistic rate of return for the period.  While my assumptions seemed reasonable individually, when put together by the calculator, the pessimistic scenario resulted in my losing money (after inflation) every year for 30 years – a rate of return far worse than anything seen in history! No wonder I was running out of money.

For the reasons explained above, I prefer calculators that employ historically derived rates of return, or simply utilize the 4% rule (which is itself historically back-tested), rather than asking the user to enter his or her own guesses on critical assumptions.  As a user, you simply don’t have enough information to understand how the program is going to use your inputs.  In my opinion, a program that makes it easy to screw up is not well designed, and I downgraded such tools accordingly. 

Before You Dive In

You will save yourself some time if you jot down in advance some key pieces of your financial information (and, if pertinent, that of your spouse or partner):

• Your expected social security benefit, and the age at which you plan to begin receiving benefits;
• Any pensions you expect to receive, and the age at which you will start receiving them;
• Your expected spending in retirement, with and without taxes;
• Your retirement savings;
• Your salary (or, if retired, your most recent salary); and
• The amount you save each year (if you’re not yet retired).

A word of caution: pay attention to whether your expected spending and income entries are supposed to be monthly or annual.  You will get wildly inaccurate results if you inadvertently enter the wrong one (mea culpa).  Also, notice whether the tool you’re using is operating in today’s, current (i.e., uninflated) dollars  or in future (inflated) dollars.  This doesn’t affect your entries (which are generally all in today’s dollars), but makes a huge difference in interpreting the outputs.  A dollar of income or assets 30 years from now in future dollars is worth less than 50 cents, while that same amount in today’s dollars is worth the full buck. 

Simple, easy calculators

OK, let’s visit some calculators, starting with a simple one.  In general, the retirement calculators that can be done in five minutes or have you answering just a few questions are overly simplistic.  They lack the flexibility to allow the user to enter the nuances and complexities that describe most people’s real circumstances.  Also, they’re so simple that you really have no idea what the tool is doing and how on or off-point its results may be. 

One very simple calculator that I do like is Vanguard’s Retirement Income Calculator.  This is a good place to dip your toe into the vast ocean of online tools.  The Vanguard calculator is clean and straightforward, takes very little time to complete, and has clear graphics illustrating its conclusions.  A particularly nifty aspect of this calculator is that it’s all on one page, and you can adjust your inputs and assumptions via sliders and see what the impact is on results.  Playing around with these sliders can be quite illuminating. 

Rather than calculate complicated scenarios or rates of return, the Vanguard calculator uses the 4% rule to determine how much income you can derive from savings – simple, but quite reasonable.  Its shortcomings include a lack of timing flexibility (e.g., taking a pension or Social Security at a different age than you stop working, or couples retiring at different times).  If you’re a couple, you’ll need to enter your data lumped together. 

Also, it’s not clear whether the rate of return on investments you must enter is real (no inflation) or nominal (includes inflation).  Half an hour on the phone with Vanguard reps failed to clarify this point.  Still, it appears that this entry primarily affects the growth of investments prior to retiring, so if you’re at or close to retirement, this assumption won’t make much difference. 

Despite a few limitations, this fun tool is definitely worth checking out. 

A Step Up

Another set of calculators takes (a bit) more time and effort to complete, but offers substantially more flexibility to reflect more complicated, real-life circumstances.  In many cases, these medium complexity calculators are also far more powerful.  My favorite in this category is the T. Rowe Price Retirement Income Calculator.  While not all on one page, the T. Rowe Price tool is still quite painless to complete, taking only 10 minutes or so.  It allows you to enter your expected social security and pension income, to set and adjust your planning horizon, and to enter separate information about a spouse.  It includes a handy worksheet to help you estimate your expenses. 

This tool offers a significant step up in its modeling sophistication.  Instead of assuming a fixed rate of return, or just accepting that a 4% withdrawal rate will work, it uses Monte Carlo analysis to run thousands of possible scenarios (based on historical returns) using the portfolio that you specify.  This allows the Retirement Income Calculator to project the probability that your income and savings will be sufficient to see you through your desired time horizon (say, to age 95).  As with any calculator that calculates a probability that your money will last through retirement, 90% or 95% confidence is a good target to shoot for; if it says 50%, you may need to think about working longer, trimming expenses, or adjusting in some other way.   

The T. Rowe Price tool has its limitations.  For example, it does not allow you to model complex timing (e.g., you retire at 65, your spouse retires at 62, you take Social Security at 70).  Still, this straightforward, easy-to-use, yet powerful tool is well worth your time.  Try it out!

The full meal deal – complex, powerful calculators

The most powerful and flexible calculators, not surprisingly, also take longer to complete.  Some complex calculators involve downloading software and/or paying a user fee.  The flexibility of some of these calculators can also get you in trouble, as they allow you to enter assumptions that are unrealistic or don’t work well with other assumptions.  Still, I found several excellent calculators in this category that are free, can be completed in 20 minutes or so, and are constructed so as to minimize user error and misinterpretation.   As a plus, several of these calculators also have nice educational information and links, allowing you to follow up and learn more about topics that interest you. 

One calculator I liked was the Fidelity Planning and Guidance Center, which doesn’t sound like a calculator at all.  (Don’t confuse it with the Fidelity Retirement Score, which is a much simpler tool.)  You don’t have to be a Fidelity customer to use their calculator, but if you are a customer they will import your account data.  This tool’s questionnaire allows you to enter your expected social security plans (full retirement age, defer to 70 or whatever you choose), or it will estimate your benefits for you.  You can input separate entries for two partners, different retirement dates, different/multiple pensions, and other special circumstances or one-time events (e.g., realizing profits from downsizing or funding a big wedding).  Expenses can be entered via a detailed worksheet or as lump sum expenses.  Taxes are estimated separately, which can be confusing.  The tool asks whether you have Medigap and Long-term Care Insurance, but doesn’t appear to change your out-year spending if you answer no, which I think is a missed opportunity.  (Fidelity has done some good research on health care costs in retirement.) Instead, it reminds you of this ‘risk’ as it provides results.

Like T. Rowe Price, Fidelity’s tool uses Monte Carlo analysis (a paltry 250 iterations, though, compared to T. Rowe Price’s 1,000) to calculate a range of outcomes based on the portfolio you specify.  Results are presented graphically, or you can view the underlying yearly numbers.  You can choose from average returns, worse than average, or much worse than average; choose much worse than average to see the simulation results at the 90% confidence level – meaning that 9 out of 10 times, your expected outcome will be at least this good.  In sum, this calculator is flexible, powerful, easy to use and hard to mess up.  Give it a test drive!

I’ve saved the best for last – John Sholar’s FIRECalc website, which is fun and almost effortless to use, yet very powerful and educational.  While T. Rowe Price and Fidelity use Monte Carlo simulations to model multiple scenarios and determine the probability that your savings will last through retirement, FIRECalc employs the primary alternative method – historical analysis using the stock and bond market returns in actual 30-year periods.  (Actually, it will also do a Monte Carlo analysis if you ask it to.)  FIRECalc goes William Bengen one better by extending this retrospective analysis all the way back to 1871! 

While FIRECalc has all the flexibility of other powerful calculators, it is dead simple to use.  You can start with just a few entries, then expand to enter all the complex situations you desire – different retirement dates, deferred social security, pensions, windfalls and big expenses, and so on.  With engaging enthusiasm, the tool draws you in and educates you as you go.  An interesting wrinkle is the option to specify different spending models in retirement:

• constant spending (the same amount each year, adjusted to keep up with inflation),
• a percentage of your portfolio, or
• a path that adjusts spending downward in retirement, reflecting research that shows that this is what retired people tend to do. 

FIRECalc displays results in the form of a colorful spaghetti graph that shows your savings over time under all the possible scenarios it calculates; if the great majority end up above zero, you’re golden!  The tool even allows you to analyze your own results, including how delaying retirement or changing your portfolio allocation would affect your success.  While the program itself is great, the well written explanations and resources are equally valuable.  FIRECalc can serve as an introduction to the whole FIRE (Financial Independence/Retire Early) movement, providing links to books and websites that allow you to learn more about financial planning and the hip, energetic FIRE movement.  Don’t miss FIRECalc – it’s a hoot.

Conclusion

There you have it.  Try out the four calculators recommended above and you should have a good sense of whether your retirement planning is on track.  The results, while they may look different on each site, should be consistent with one another and confirm your own calculations.   These calculators also allow you to perform analysis that’s difficult to do at home – such as examine complex situations and run hundreds or thousands of simulations to estimate your probability of success.  You will come away more confident in your own plan, as well as energized, educated and thirsty to learn more. 

Let me know what you think of the calculators I’ve recommended, and what other tools you’ve found that you like.  Have fun!

References

Fidelity Investments.  (2019).  Planning and Guidance Center.

Sholar, John.  (2019, April 16).  FIRECalc: How Long Will Your Money Last?

T. Rowe Price.  (2019).  Retirement Income Calculator.

The Vanguard Group, Inc.  (2019).  Retirement Income Calculator.