How Much Do We Need to Retire?
One of the things I would like to do is to put together my own financial calculators. I have a mortgage calculator that I will update to put here on the site. Other calculators I will have to put together based on what seems to be useful. Most of the calculations you need can be done with basic tools. The other calculations take some combination of more complex calculations, large amounts of data, and assumptions about the future.
An article over on Marketwatch talks about some complex calculations you can use to figure out a retirement number. The article is here. This article is about the different options in retirement planning calculators, from free online tools to programs you can buy for $150. The economist they talk about has the opinion that the free tools “get it wrong.”
My opinion is that none of these tools should be viewed as the right or wrong answer to retirement savings planning, but should be used to set guidelines. Any tool or calculator that I create will say that up front. In fact my opinion is very similar for all general financial tools or advice. Take it and learn from it. Use it to help set up your own rules and guidance. Build an understanding of *why* it is suggesting the plan it gives you.
As for this type of calculator, I’m not sure how much of it I would put in a calculator I would create. A good worksheet and planning session will give a pretty close idea to what this type of calculator would. It wants to smooth out finances based on changing incomes, costs of living, family expenses, etc.
The big points to consider here are risk and opportunity cost. I think a few starting questions make a good first step. What are the odds of a good retirement at different levels of savings, using simple calculators? How happy will I be spending the $ left in my budget each year, after savings and out of the ordinary expenses? Have I considered the risks of inflation, changing taxes, career changes?