A 401(k) retirement calculator is an online tool estimating the amount of money you can save for your retirement. There are retirement calculators offered for free by institutions providing financial education, or even in online magazines on finance. There are those which are for sale, but there are also those offered by your employer through the 401(k) plan. However, before deciding which to use, you might want to familiarize yourself with the pros and cons of each. Read more below to find out how useful a retirement calculator is.
How Does A 401(k) Retirement Calculator Work?
Key Features to Look For In A Retirement Calculator:
- Should take into account specific details on the expenses you expect upon retirement
- Be able to differentiate the withdrawal amount you can make on your savings to make adjustments (reduce or increase withdrawals)
- Should store the results generated from every data you input and computation answers
- Able to predict future economic status or provide different possible scenarios
- Can put together all principal income sources such as social security, pensions, work, etc. to better assess income source quality
- Able to provide information answerable by “What If” questions such as “what if you sold your house and decide to invest the earnings,” “what if your care expenses are too high and for long-term,” etc.
Pros For Using A Retirement Calculator:
More advanced calculators provide options on asset allocation into other investment types. This enables having a backup for the source of retirement income. An analysis will also provide how much the earnings for a particular asset are.
Informative Action Plan
One advantage of using a retirement calculator is the calculations it provides for living expenses per age. When selecting your life expectancy, it is advisable to choose a higher age compared to the one you’re expecting.
Some of the best calculators will project the rate of returns for various scenarios. These alternatives include having an income for life guaranteed to meet your minimum needs. Another is having other assets as investments. Some run different projected scenarios based on how return rates may vary over the years.
Cons For Using A Retirement Calculator:
There are some retirement calculators which offer several miscalculations. Among the miscalculations is life expectancy. Some calculators fail to consider differences in life expectancy based on gender, race and income. Some experts also believe that calculators should include family history when it comes to health to predict how long you may live.
Also, some retirement calculators provide very few options or assumptions about the plans for your house upon retirement. They lack an analysis of the financial impact of a mortgage carried until retirement.
Some Key Variables Are Missing
Some retirement calculators provide unreliable data. Experts believe this is due to critical variables missing in the calculations. Since retirement planning and forecasting can be so complicated, some retirement tools skip corners and create calculators that are far too simple. However, it’s critical that all the essential variables should be present when doing the calculations.
Online Retirement Calculators:
The following is a list of some of the retirement calculators which you could use for your 401(k) plans:
This is a retirement calculator which provides an approximation of the money you need to save in funding your retirement. Ballpark E$timate is a free software program which is downloadable both for iPhone and Android mobile phones.
Retirement Income Planner (Fidelity Investment)
It has almost complete features, but the software is only free upon signing up as a member. But you may also check out the website’s Planning and Guidance Center, where you can use the tool even as a guest.
RW2 for YOU
This is a detailed planner available online. However, you would need to purchase a 1-year license for $189. Discounts are also available. Their retirement calculator offers future scenario projections to better understand possible risks in various life and economic events.
Vanguard Retirement Income Calculator
There are two retirement tools offered by Vanguard for free. These are the Retirement Income Calculator and the Retirement Nest Egg Calculator. Both of these tools offer comprehensive retirement planning.
CoRI provides retirement planning particularly for people ages 55 to 64. It also provides your retirement income estimate as well as recommendations for plans to allocate your assets. This could range from the conservative to the moderate ones.
Personal Capital is a financial platform offered for free. It provides a selection of tools, from a 401(k) fee analyzer to an evaluation of asset allocation and a proprietary algorithm for FSI (Financial Sustainability Index) calculations.
The effectiveness of 401(k) retirement calculators varies on a case by case basis. Each type of retirement calculator also caters specific and different needs. It can match the needs of one user but is not applicable to the situation of another. Conducting due diligence is still best in knowing which retirement calculator will help meet your needs and goals for your 401(k) plans. Choosing the right one can also help you maximize calculations on the amount needed for retirement.
Which 401(k) retirement calculator would you like to use for your retirement investments? Share your thoughts in the comments section below.