Calculator Untrustworthy: Why You Can’t Rely On Online Retirement Calculators

Calculators: it seems there is an online calculator for anything you may want to analyze or predict. From mortgage repayment calculators to compound interest calculators and loan comparison calculators; from calculators comparing the cost of renting versus buying to calculators to work out your businesses balance sheet or profit and loss; and education cost calculators to website value calculators and currency calculators, there range of online calculators can be baffling.

One particular type of online calculator that has become popular in recent years is the retirement calculator. As the economic outlook remains grim, people are becoming concerned about their levels of savings and income and are wondering at what age they will be able to retire.

According to the Employee Benefit Research Institute, almost 30 percent of workers expect to retire before they turn 65-years-old. Unfortunately, many of these people will soon discover that they do not have the financial standing to retire early as they had planned. In fact, many people are continuing to work after their retirement age due to the lack of appropriate savings to fund their retirement.

As CNBC reported on April 21, 2015, many online retirement calculators are unreliable, as they do not take the right factors into consideration when predicting a person’s possible retirement age. Importantly, many online retirement calculators concentrate on the person’s current income, which is not as important a factor as the standard of living the person expects to have in their retirement, as well as their ongoing levels of debt and their projected life expectancy.

Sharon Epperson, Senior Personal Finance Correspondent at CNBC, has delivered valuable advice on the real factors that should be taken into account when determining what age a person can expect to retire.

“Your retirement age shouldn’t be left to chance. The first question: how is your health? Poor health can have a greater influence than finances on someone’s decision to retire early. A couple retiring today at age sixty-five will need as much as $320,000 to cover medical expenses in retirement. A 55-year-old couple today, retiring in 10 years, will need $465,000. How long will you live? That’s the next question to answer. You can make a projection based on various scenarios and use a life expectancy calculator to do so. How much income will you need? Estimate how much income you’ll get in retirement from all the available sources and subtract the debt you’ll need to pay off. How long will your retirement income allow you to maintain your lifestyle? Once you’ve answered these questions you may find out you need to ramp up your savings.”

Calculating a projected retirement age that is both feasible and affordable is not a simple task, and it relies on finding the perfect balance between a range of complex and difficult-to-predict factors. The simple fact is that online retirement calculators lack the levels of foresight and depth that would be required in order to replicate the perfect algorithm for such a calculation. In reality, technology may not have advanced to the point where a computer algorithm can know enough about a person’s or a couple’s finances and personal circumstances in order to accurately predict their retirement age.

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