I’ve Projected Your Retirement and It Looks Great! But Wait…

I’ve Projected Your Retirement and It Looks Great! But Wait…

Posted by: Michael Langseth on August 19, 2016, Latest News

calculator-385506_1920“You’re on track to a healthy retirement.” “You need to increase your contribution to meet your retirement income needs.” At one time or another you’ve probably seen quotes like these either on your 401(k) website or after looking at a retirement income calculator. The quote was likely accompanied by data illustrating how much income you will have in retirement or how short you are from your retirement needs. The results of retirement calculators can be reassuring or alarming depending on your situation. But have you ever taken the time to look at the assumptions a calculator is making? A recent study completed by Corporate Insights suggests there’s much to be cautious about when using retirement calculators. After studying 12 independent, publically available retirement calculators, Corporate Insights found that depending on the calculator an individual uses, they could have drastically different results. One calculator may make your retirement look rosy and another may make your retirement look like you’ll have to tighten the belt.

So what causes such drastic differences to the results of a retirement calculator? Common retirement calculators rely on users to provide a series of simple inputs (i.e. age, desired age of retirement, size of portfolio and life expectancy) to develop their output. But often times there are additional assumptions (i.e. average investment return, inflation rates, and taxes) at play that can have a large effect on the output developed by retirement calculators. If one calculator assumes an average portfolio return of 5% while another assumes an average portfolio return of 7%, the results will be drastically different. A client with 7% annual returns would probably look at the results and get a false sense of security while a client who is similar in every other way may stress about what to do next if their calculator shows 5% average returns.

It’s important to remember that while retirement calculators can be great tools, they are just calculators. They are programmed to process a series of inputs with their programmed assumptions to develop an output. Calculators are limited by their design and can’t see any part of your retirement picture beyond what you tell them in your input. The information from a retirement calculator can be valuable but it should be taken at a grain of salt. It’s important to always look at the assumptions a retirement calculator makes to develop its projection before coming to any conclusions about the output.

At Modus Advisors we can always help to provide a more reasoned, human look at your retirement to help you plan for your future. We are always willing to help!

A copy of the Corporate Insights study referenced here can be found at http://go.corporateinsight.com/retirement-tool-results-analysis.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

The commentary on this website reflects the personal opinions, viewpoints and analyses of the Modus Advisors, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Modus Advisors, LLC or performance returns of any Modus Advisors, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Modus Advisors, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

© 2014 Modus Advisors, LLC. All Rights Reserved.