How To Use A Retirement Calculator

Senior woman counting money with calculator

For non-investors, retirement planning is often a quagmire of doubt and confusion. How much do you need for retirement? When should you start putting money away? At what age can you retire? Hundreds of retirement calculators further complicate the matter. Each one is built on a different set of assumptions, and each one provides different answers. So, how can you use these tools to find good, solid answers to your retirement questions?

Finding the best retirement calculators

Not all retirement calculators are created equal. Some only take minutes to spew out an answer; others take a little more time. Keep in mind that the information you receive is only as good as the information you give, so choose calculators that are versatile and require some level of detail. The result is a much more accurate answer that can help you begin working toward your retirement goals. CNNMoney.com rates the retirement calculator at www.basic.esplanner.com as the top site in a list of the 20 best money websites. The calculator is free, but requires about 30 minutes to complete. If you prefer to invest a little less time, the calculators available at www.aarp.org and www.CNNMoney.com are worth a try.

Try several calculators

Do a search for retirement calculators and the result is a plethora of options. Try several calculators to get an idea of how each one works. Each one may give you an additional tool in your retirement planning arsenal. Many provide interesting insights into retirement planning. For example, FIRECalc¨ at www.firecalc.com tests the data you submit by running it through scenarios based on actual market cycles since the 1800s.

Look at underlying assumptions

The types of questions a calculator asks are very important because they reveal some of the underlying assumptions of a particular calculator. In your search for the best retirement calculators, you will soon begin to notice that most calculators ask for your age, current income and the current amount of savings in your 401(k) or IRA. Some calculators assume that you will never get a raise or increase your deductions, which does not provide you with information of much use. The Motley Fool retirement calculator by LeadFusion is a calculator that requires detailed input and provides some good data in return.

Start saving

The most important step in using retirement calculators is to put what you learn into practice. If you see that you are only putting away half of your optimal savings amount, try your best to funnel more of your income into your retirement account. The sooner you start, the better.

Use a retirement calculator to find out what percentage of your income you should put into savings and change your 401(k) or IRA contributions as soon as possible. That way, as your income grows, your retirement savings grows too.

With a world of retirement planning resources at your fingertips, you can discover the answers to your retirement questions. However, do not forget the importance of taking action. No matter how much your retirement calculator tells you that you need for retirement, you can only achieve your retirement goals by making some sacrifices and tough decisions when it comes to planning for the future.

The most important step with retirement calculators is to put what you learn into practice