Undoubtedly, the most defining moments in an individual’s personal as well as professional life arrive during their 20s and 30s. A majority of the younger generation is caught up juggling the existing humdrum as well as their dreams for a better life. However, while working toward the latter, they often forget that they don’t just need to focus on the present but also plan for a secure future, i.e., retirement.
Thinking about retirement, especially in your 20s, can be extremely confusing; this is normally because you are still exploring your career and lifestyle options. You must be wondering how to begin. Preferably, you should start by envisioning what kind of life you want to lead after you retire. Do you want to travel, move to a beach house, or simply spend time with your near and dear ones? Straightening your priorities out will offer you with a fair view of your current income, savings, and future monetary needs. The next important step is to get a detailed projection of your finances, and the best way to that is by using a retirement planning calculator.
How do retirement planning calculators work
In simple terms, retirement planning calculators will clarify whether your current financial assets harmonize with your future retirement goals. If you’re lagging, these virtual tools can come in handy and assist you in making smart investment decisions in the present. The most basic retirement calculators will comprise determinants such as your current age, your desired age of retirement, current income and expenses, expected income, savings, and investments. Moreover, retirement planning calculators could include additional information such as inflation, life expectancy, growth rate pertaining to income and investments, and Social Security benefits. However, retirement planning calculators may not consider factors such as taxes, major or unexpected expenses, pensions, or supplemental income.
Choosing the best retirement planning calculator
You can find a multitude of retirement planning calculators online. However, there is one catch: there is no uniformity across these platforms. Every financial institution’s retirement calculator applies a different formula and requests a variety of inputs to analyze your profile. The best way to get an estimate is by using multiple retirement planning calculators (4 to 5) so that you can compare and narrow down the average amount you need in the future.
Following are some popular retirement calculators that you can try.
- AARP Retirement Calculator
- Bankrate’s Retirement Calculator
- Charles Schwab Retirement Calculator
- CNN’s Retirement Tool
- Fidelity Investment’s Retirement Preparedness Measure
- Financial Mentor’s Ultimate Retirement Calculator
- FINRA’s Retirement Calculator
- MSN Money’s Retirement Planner
- Nerd Wallet Retirement Calculator
- Vanguard’s Retirement Income Calculator
- U.S. News Money Retirement Readiness Calculator
Since your personal financial position and market conditions are dynamic, it is important to use these tools every now and then. For example, if you received a raise or made a new savings investment, then you should recalculate to make comparisons and essential adjustments in your money management plan. Likewise, try different scenarios such as altering your retirement age to seeing how working for a shorter or longer period of time can affect your savings.
Pros and cons of retirement planning calculators
One of the most prominent advantages of using a retirement planning calculator is that it provides an estimate that can give you a sense of direction about how to manage your retirement expenses. This can help tweak your spending and saving habits. Unlike other financial services such as consultation and accounting firms, you don’t have to worry about spending a bomb on retirement planning calculators. Furthermore, retirement planning calculators these days are increasingly detailed when it comes to the inputs. Thus, you are more likely to get a tailored result than a generic one.
Unfortunately, retirement planning calculators work on a scientific formula and pure assumptions, which makes it impossible to get an accurate outcome. Factors such as inflation rates, returns, and life expectancy are simply unpredictable. The inability of retirement planning calculators to include parameters like taxes can again shake up ones long-term goals, especially in the case of a traditional individual retirement account, wherein taxes have to be paid while withdrawing the savings. Therefore, you can’t only rely on such virtual tools. To handle complex monetary situations and personalized advice, you need to hire a financial advisor.
Preparing for retirement
The most commonly asked questions about retirement is “when should I start saving?” Ideally, you should start saving for retirement by the time you turn 25. This may sound like a huge financial commitment, but you can always start small and invest smartly. For example, if you save $3,000 a year from the age of 25 for only 10 years, by the time you turn 65, your investment of $30,000 will be more than $330,000 (assuming an annual return rate of 7%). Comparatively, if you start saving by the age of 35, you will have to save for 30 years to secure a similar amount. Saving for retirement from a young age will not only maximize your savings but also help you opt for an early retirement.
