MONEY OBEDIENCE

Why Use a Retirement Planning Calculator?

Personal finance is not a precise science. Not only is “finance” itself not precise, but “personal” is definitely anything but precise. Each one of us is just way too unique to allow anybody else to describe us accurately down to the last personal feature. Personal finance tools, therefore, just cannot be precise either.

A favorite personal finance tool is a retirement planning calculator. Such calculators can be very complicated or fairly simple. But no matter how complicated or simple they are, we must feed all kinds of numbers and assumptions into the calculator in order to get out of it some decent estimates. The numbers and assumptions are really the thing that drives a retirement calculator. If you put bad numbers into it, the result will be, of course, also bad, no matter how good the calculator is. On the other hand, a bad retirement calculator will also give you bad results no matter how good the numbers are that you feed into the calculator.

Still, as long as you are careful about the numbers and assumptions you put into a retirement calculator, using almost any calculator is better than using no calculator at all. After all, a retirement calculator is like a map in an ever-shifting landscape. You still want to use a map, but you got to adjust the route as you travel towards your destination. If you don’t use a map, there is a chance that you will never reach your destination; if you don’t use a retirement calculator, there is also a chance that you won’t be able to retire. But the better the map you use, the better the chance you have of more easily getting to your desired destination.

Unfortunately there is no good way to make sure that you on your own are either using a good enough calculator or good enough numbers and assumptions. You can guard against bad calculators and numbers by working with a qualified financial planner who has tested a few calculators and who also can help you feed realistic numbers into the calculator.

This post was inspired by a very good review of retirement calculators in general and the motley fool retirement calculator in particular at the Oblivious Investor blog.

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“Save Money with 2 Rules to Negotiate for a Good Bargain” in the Festival of Frugality hosted by Frugal For Life.

Do renters really save money in the end? in the Carnival of Personal Finance hosted by Provident Plan.

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Posted in Retirement_Calculator