Do you think online retirement calculators are useful? When I was trying to quit my job, I spent an inordinate amount of time projecting our post retirement finances. If you retire at 40, your retirement will be 20 years longer than a normal retirement. It’s really difficult to predict how your investment will do over 50 years and I don’t want to run out of money when I’m 70. These long retirement years are why most financial advisors don’t support early retirement.
One important tool I used was the online retirement calculators. Whenever I found a new free retirement calculator, I’d run my numbers and see the result. Unfortunately, most retirement calculators don’t like early retirement either. Many retirement calculators are from financial institutions that are still stuck on the traditional retirement at 65. There are some useful retirement calculators, but I always thought there must be a better one. Actually, there is no such thing as a perfect retirement calculator because they have an impossible job. Nobody can really predict the future accurately. Anyway, they were all useful to some degree and they helped me refine my retirement strategy. FIRECalc was the best retirement calculator I tried, but now there is a better retirement calculator from Personal Capital. Here are my issues with various online retirement calculators.
- Project retirement spending based on current income. Most retirement calculators look at your current income and use that data to estimate how much you would need in retirement. This is probably fine for most people because they spend 90% of their income and save 10%. It might be perfectly valid for the Jones, but that won’t work for the super savers like you and me. We save and invest much more than 10% of our income and I’m sure you do as well. I made about $120,000/year for the last few years I was working, but we were saving all of that. It doesn’t make any sense to base retirement spending on your current income if you save a large chunk of your income.
- Capped saving rate. CNN Money’s retirement calculator caps the saving rate input at 25%. Vanguard’s calculator caps the annual saving at $60,000. This is good enough for most people, but we were saving far more than 25%.
- Expected average annual rate of return. You need to estimate your annual ROI and it’s a shot in the dark. I usually go with a conservative 7%, but who knows if that’s accurate. Some calculators use the historical data and Monte Carlo simulation to calculate your chance of success. I like the Monte Carlo method because it estimates your chance of success and give you the result in %. For example, you have a 75% chance of outliving your money. You can’t take it too seriously, though. There are too many variables in life and you never know how the stock market will perform or how long you’ll live.
- Financial events. We plan to help RB40 Junior with college and it will be a huge expense in 14 years. This will have a negative impact on our finance for 4 years and most calculators don’t take that into account.
- Post retirement income. We have income from blogging, rental properties, P2P lending, and other sources. I’m also hoping we’ll get at least 70% of our social security benefit once we’re qualified.
- Overly complicated. Some retirement calculators are quite good, but you need to input a lot of variables. On FIRECalc, you can enter your asset allocation, spending model, lump sum changes, and more. That’s great for those of us who know our portfolio inside and out, but it is still a lot of data to enter every time you want to check your retirement number. It would be much easier if they can just pull that data directly from my accounts.
Did you see that big hint at the end? Now, there is a retirement calculator that will take your real time data and calculate the chance of a successful retirement (outliving your money.) I’m a big fan of Personal Capital and I have been predicting that their tools will get more sophisticated and more useful. Personal Capital’s latest effort is their Retirement Planner, a real time retirement calculator. Personal Capital already has the data for your portfolio, income and cash flow so the logical next step is to crunch all that and figure out if your retirement plan is realistic.
If you are not familiar with them, you can read my review of Personal Capital here.
As you all know, Mrs. RB40 is still working. She likes working, but it would be great if she has the option to retire too. Our challenge is to reach Financial Independence by 2020 and she can quit her job or try a different career. She has been thinking about getting a different job, but it’s tough to walk away from a well paying job. Let’s see if Personal Capital’s new Retirement Planner can help her make up her mind.
Let’s look at our income first.
- Saving – We are saving over $50,000 per year and will continue to do so until Mrs. RB40 quits her job in 2020.
- Social security – I use 70% of our estimated social security benefit here.
- Rental – Income from our rental property.
- Blogging – Can I continue to blog for 20 more years? I’m not sure, but our post retirement income should be over $50,000 for a good long while. I will most likely be self employed part time until I’m in my 60s.
- Sell Rental – I’m pretty sure I will want fewer responsibilities as I grow older. I’ll target selling our rental properties when I’m 61. I’m pretty sure we can net at least a million when we sell in 20 years.
Retirement Spending Goals
- Retirement Spending – $59,594 per year is a bit higher than I thought. That’s because we spent more than usual last year when we purchased the rental property. We paid various fees and fixed a few things at the rental. Our spending should be back to normal in 2015 and this should be reduced to about $50,000 in a year or so. You can manually set your spending target if you’d like. I’ll leave it set to dynamic for now.
- International Travel – We’d love to travel more once Mrs. RB40 retires. Actually, I think a travel budget of $20,000 per year is pretty extravagant.
- Healthcare – Once Mrs. RB40 quits her job, then we’d need to buy private health insurance. I’m not looking forward to that at all.
- College – $80,000 per year for 4 years starting in 2029. Yikes! Hopefully, Junior can get some scholarships.
You’re in great shape for retirement. We forecast that your portfolio will comfortably support your goals, including $57,469 per year in basic retirement spending. How Can I Improve This?
Alright! It looks like we’re in great shape. They also have some suggestions on how to improve our asset allocation to reduce risk and increase return. You also have the option to schedule a call with a human advisor and discuss the result if you’d like.
The Best Free Retirement Calculator
Personal Capital’s Retirement Planner addressed most of the issues I have with other online retirement calculators. It pulls data directly from my accounts so I don’t have to manually input them every time. The calculation is made dynamically, so you can’t get any better than that. The Retirement Planner uses the Monte Carlo simulation* to calculate your chance of having a successful retirement. I know some people don’t like it, but it’s probably better than using a flat percentage like I’ve been using.
All in all, I really like the new Retirement Planner. It’s easy to use and it’s dynamic. In real life, you should not run your calculation once and forget it because there are too many variables in life. You need to crunch your retirement numbers at least once a year to see if you’re still on track to a financially secure retirement. Personal capital made it a lot easier to make sure you’re on target. It uses real time data so if your portfolio is depleting too quickly, you’ll get an early warning and figure out how to adjust it. You can work a bit longer, save more, invest more aggressively, or work after retirement. There are many ways to adjust your retirement and a dynamic retirement calculator can help you make those decisions. Of course, if you need more help, then you should talk to a good financial advisor.
Retirement calculators can’t predict the future, but they can be very useful when you’re trying to figure out your retirement. Personal Capital uses real time data and calculates your retirement projection whenever you want. I don’t see how it can get better than that.
If you don’t have an account with them, you can sign up for free through this Personal Capital link.
Try it out and tell us if you think the Retirement Planner is the best free retirement calculator available.
*Some people think the Monte Carlo simulator is too optimistic and doesn’t model bear markets well.
Disclosure: If you join Personal Capital, I may receive a referral fee depending on the size of your portfolio. You don’t have to use their wealth management service and all the financial tools are free.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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