Figuring Equations That Retirement Calculators Don't Calculate

By Julian Guilfoyle "The question isn't at what age I want to retire, it's at what income." -George Foreman For those who would like to get a gauge of where they stand in retirement planning, free online calculators are available at the ready online. In an article titled "6 Things Retirement Calculators Get Wrong" author Mark Miller cites a recent study by the Society of Actuaries that concluded among other findings, "many popular calculators have serious flaws". The report looked into online calculators created by institutions ranging from financial firms like Fidelity and MetLife to government agencies like the U.S. Department of Labor. While the article lists six areas where these calculators fall short, I found several especially troublesome. Social Security Projections John Turner, economist and co-author of the report has two fundamental issues with the way the calculators project social security benefits. He critiques, "They [the online tools] don't ask you to consider a lot of important variables" and that the calculators "low-ball" the increases recipients receive for the annual cost-of-living adjustment (COLA). My Thoughts Depending where one is on the path to retirement, relying too heavily on social security, especially in its' present form, is shortsighted at best. For baby boomers I'm not so sure low-balling future increases is a bad idea either, especially considering social security recipients have not received a COLA since January of 2009. Life Expectancy Kirk Kreikemeier, a financial advisor who served as an advisor for the study remarks, "The probability that one [spouse] will live beyond the average is pretty high". In addition, when these sites automatically input life expectancy figures, variables such as race and genetics, which are crucial to measuring longevity, are ignored. My Thoughts While no one has a crystal ball to determine when the end will come, it's obviously better to be safe than sorry. Perfect retirement planning that does not take into account the advances in medicine and increases in life expectancy will turn the potential of an inheritance into a shortfall of assets. Spouses The article states, "Few of the free calculators helped couples forecast retirement income for a surviving spouse". The author continues, "When the calculators recommended annuities for retirement income (most didn't), none suggested buying one with a survivor's benefit." My Thoughts The failure to include preparations for the surviving spouse can have severe repercussions on several fronts. If the spouse is not left with adequate income, they will need to access assets earlier than planned. If these assets are converted into income streams, potential for growth may be sacrificed as well. Retirement is a cause of concern for many Americans and rightly so. At arguably their most vulnerable stage in life, when many are living off fixed incomes, key missteps in planning can be financially devastating. Get your legal and financial houses in order and enjoy the ride into the sunset.

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