Don’t use retirement calculators to plan your retirement

Many pre-retirees jump online and search ‘retirement calculator’ to think about their retirement planning. Generally retirement calculators are easy to use and this makes them popular. You type in your superannuation balance, retirement age and the income you’d like to receive. The retirement calculator shows you how long your money may last.

Many people don’t realise however that the retirement calculators they use have at least seven serious issues and should not be trusted to complete your retirement planning.

The problems with retirement calculators

1. We know investment markets will go up and down. We also know your returns will vary depending on what you’re invested in. Retirement calculators however assume a constant return rate which is only ever positive. This means the results they provide will never be accurate.
2. When you invest in the market can also affect your investment outcome. Retirement calculators don’t consider the current market cycle or strategies to mitigate timing risks. As an example, a couple who retired a week before the Global Financial Crisis (GFC) is likely to have a very different outcome to what the retirement calculator showed before they retired, if they took no other action.
3. Retirement calculators don’t usually consider the fees you are charged and investment changes you make. Rarely are investments set and forget. The laws around retirement can change too and this can affect your outcome. This is another reason why a retirement calculator will never tell you the whole story.
4. We know that over time the costs of goods and services change. What $100 buys you today won’t be the same as in 10 years time. Price rises are more commonly known as inflation. Many retirement calculators as many don’t take inflation into account.
5. Many retirees have investments outside of their superannuation. Some retirees might also wish to downsize their home. Downsizing can provide them with additional funds to provide a retirement income. Retirement calculators don’t take into account these kinds of issues which will greatly impact the outcomes you may receive.
6. Many retirees will be able to access Centrelink and other benefits, once they leave work. A retirement calculator will never give the whole picture or show you how you can supplement your income with any benefits that are available.
7. Retirement calculators don’t take into account any estate planning matters that are important to you.

Our conclusions on retirement calculators

You can’t rely on a retirement calculator.
You should never use a retirement calculator to replace proper retirement planning.

So what is the solution to retirement planning?

We believe there’s really only one. You need to seek personal retirement planning advice at least 5 years before you retire. With time on your side you have options.

Good retirement planning should consider all of the issues and challenges that we’ve described here with retirement calculators.

First time advice clients a free appointment to see how we work with you. We start by understanding your retirement goals. Complete our easy-to-use contact form at anytime or call us on (02) 9406 5100 to make an appointment.

Life Values provides fee for service retirement planning advice. See our free retirement planning checklist for additional reading.

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