Last week I was on some random PF site and I saw a retirement calculator at the bottom of their site. Just for grins I threw in some numbers similar to our projections and OMG was I surprised at the outcome. According to this calculator I won’t be able to retire – ever… I mean, this particular calculator said that I’d need $10 million to retire based on my inputs. Really, $10 million?! Because of course I can’t live off of less than $500k per year, I mean, seriously, who does that? Well for starters, we don’t and according to the Census Bureau the median household income was only ~$54k which is only $450k short of our “recommended” retirement goal. While these inputs weren’t specific to our numbers, they’re close enough that we can ground truth them with our personal retirement spreadsheet.
For these calculators to get those kinds of numbers, the assumptions they make have to be pretty ridiculous, but it makes me think that these calculators can be misleading for the uninitiated. The biggest discrepancy I see is that they don’t ask what your expected income level will be. I only found one calculator that let you put that in, and nope, it wasn’t at Vanguard. I know, I expected them to have a better version of a retirement calculator, but with the screenshots I snagged, we can see why it falls short.
Holy Crazy Assumptions Batman!
Let’s start with the calculator that sparked this whole post. Again, I don’t want to say where I found this or what company is running it, but just google “retirement calculator” and have fun playing with the different versions that are out there. This calculator basically took my assumed income (not really my income, but that would be nice) and the current savings input number (not our actual number but close enough to where we’d like to be at retirement to know if the calculator is telling the truth) and spit out a freaking ridiculous number. How ridiculous you ask? Well, let’s look at it. My assumed income is $200k/yr and evidently I need to save enough to spend $500k/yr because in 25 yrs (assuming I retire at 65) I’ll have more than doubled my spending rate, and hopefully income to support that lifestyle. How it thinks I will spend $42k/month, yes, $42k PER MONTH is mind boggling. Remember that according to the Census Bureau the median US household income is only $53k per year. PER YEAR… And this calculator is telling me that I’ll need to save enough to spend $42k per month?! Holy shit….
I’ll Never Retire…
No wonder people get dismayed when looking at retirement needs and savings levels. I’d be really discouraged if I thought this calculator was for real. I mean, to save $10.7 million I’d have to work another 110 yrs at our current savings levels. Actually to put it in real terms if I exclude compounding growth, I only need to save $376000 per year between now and when I turn 65. Oh yeah, you read that right. This calculator assumes I will magically gain a 53% increase in salary and be able to save ALL of it towards retirement. Wow, just wow… Who the F created this thing?!
Surely Vanguard Can Save Me?
So, I thought surely all calculators can’t be this bad, what about Vanguard, the crème de la crème of institutions that us FIRE folks love. Well, they don’t love early retirees that’s for sure. Evidently in their world you can’t retire before 50, yep, that’s the lowest age that their calculator goes. Boo… I can’t save more than 30% of my salary, because really, who does that? Oh yeah, us and probably most of the PF community. If you don’t save that much, don’t feel badly about it, that’s why it’s called “personal finance”. I’m just pointing out some flaws with their assumptions. I mean building a retirement calculator can’t be much different from building a house right? You start from nothing and design a blueprint, layout, and add all the bells and whistles. So why not make the age for retirement anything before 50 or savings rate anything over 30%? I’m no software engineer, but if you can cut it off at a certain point, why not set that point at a crazy range so people can estimate things outside the box of “early retiree is 50” and we can only save 30% of my income. At least they only assume I’ll spend 60% of my current income in retirement, which we don’t. Maybe closer to 25% of our income would be realistic, but not 60% otherwise, I’d have to work until I’m 65.
Bankrate’s Calculator – A Nice Way to View Retirement Projections
This fairly simple calculator from Bankrate had a different take on it. Basically, you put in your inputs and then it shows you waht your portfolio could generate in monthly income. So, again if you know your monthly needs, you can figure out what you may need to start with to get there.
Really, MarketWatch has a nice Calculator? I’m Pleasantly Surprised
Then I found a nice calculator at Market Watch that didn’t set variables on anything. PLUS, it lets you calculate what you need for retirement income totally removed from assumptions based on what you make now. You can input your yearly retirement income needed based on your assumptions, not any random made up assumptions. Brilliant! PLUS, like the Bankrate calculator, it allows you to set inflation, tax rate, retirement tax rate, rate of return before and after retirement, I mean, it has it all. If you want a quick look at how doable your situation might be. Our spreadsheet also does this, but it gets so complicated explaining it, that um, yeah, this works great for me to play around with. You can see in this scenario we run out of “pre-60” money at 56 yrs old. Yipe! Granted, I could add more tweaks, and get really specific with our numbers and get a more realistic outcome, but the main point is that this is actually a good calculator.
If you want to play around with your numbers, I’d recommend using this one. Cfiresim also has a good calculating system, but it runs your data against all the historical data. So, if you hone in on a situation that you like using this Market Watch calculator, then you can plug the same data into Cfiresim and see how that plays out for you. It also lets you add in additional costs like estimating healthcare costs in the future, additional income and more.
We found that creating our own spreadsheet worked best for us. It’s grown and changed over the years, as we find different things we want to track, but it’s essentially our version of these 2 calculators. I rarely use it, but Mrs. SSC runs different scenarios on it about every other week. I just plug our data into one or both of these calculators and let it run and then discuss specifics with Mrs. SSC. I do use the spreadsheet but I often break it, so it’s good I’m only working with a copy, lol.
What about you? Do you use your own spreadsheet or a different retirement forecasting tool? How comfortable are you with the assumptions these online calculators make? Are they realistic for you or totally off base like I found? Let me know!