By Elaine Floyd, CFP
Online calculators shouldn’t replace expert analysis, but they can come in handy when you need to ballpark Social Security benefits, retirement distributions and more. These calculators were chosen for their ease of use, visuals, and reliable answers.
Web calculators are sometimes given a bad rap because they’re too simplistic for complex financial analyses. Retirement planning calculators particularly fall short because they try to do too much. Thirty- or 50-year projections based on mere guesses in return rates, future tax rates, Social Security, and other variables can be so misleading as to be dangerous.
But there are many instances where a quick calculation is all you need to make a point or support a broader analysis. In these cases, you want a calculator you can access and use quickly, spending no more than a couple of minutes to get the answer you need based on clear, easily accessible inputs.
The calculators highlighted in this article were chosen for their simplicity, clarity, and ease of use. They don’t overreach their limitations; they just give you a number. How you use that number is up to you, which is why Web calculators can be so useful to financial advisors—and so confusing or misleading for the public. As you know, the way these numbers are integrated into a person’s overall investment strategy or financial plan is the key to their usefulness.
Accessibility is key to getting the most out of Web calculators. Bookmark the ones you like and put them into a “calculators” folder in your Web browser so you’ll have them all in one place. In mere seconds, you’ll come up with results to some exceedingly complex calculations that free your time to spend with clients and free your brain for more high-level thinking.
Here’s our list of calculators:
- Retirement spending calculator. For clients whose standard of living will be determined by available assets, here is a simple calculator that tells how much income they can draw from a particular lump sum. Enter the starting amount, rate of return, and number of withdrawals, and the calculator shows how much can be withdrawn so that the money will be exhausted when all withdrawals have been made. Big drawback: no inflation adjustment.
- Inflation-adjusted retirement spending calculator. The calculator shown in Figure 2 adjusts for inflation and provides year-by-year withdrawal amounts and ending balances. These retirement income calculators are admittedly simplistic, assuming a constant rate of return throughout retirement. But at least they can serve as a starting point to a more detailed retirement income plan.
- Social Security retirement income calculator. Use this to make an initial ballpark estimate of the percentage of total income Social Security will provide (See Figure 3). It does not provide a good estimate of actual Social Security benefits, because it does not take into account previous earning history. Also, it assumes that post-retirement income will be the same as preretirement income without allowing you to fine-tune the income assumption. But it’s quick and includes a cool pie chart that illustrates the need for other sources of income besides Social Security.
- The government’s Social Security Online benefit calculators. These provide the most accurate estimates of Social Security benefits. The Quick Calculator bases its estimate on current earnings, while the Online Calculator allows you to enter year-by-year earnings for a more accurate estimate. (I ran it both ways, and the answers were within a few dollars of each other.) Both calculators let you see the estimate in either today’s dollars or future dollars based on Trustees’ COLA and wage increase projections.
- Calculator for when to take Social Security benefits. This simple calculator (Figure 4) is designed for clients and leaves out many of the factors that go into determining the best time to apply for Social Security benefits, such as COLAs and survivor benefits. However, it is visually appealing, explains the break-even age (the age beyond which the client must live in order to be better off delaying benefits), and gives statistics on the likelihood of living past the break-even age. Use it as an introduction to the “when to apply for benefits” conversation with clients approaching retirement age.
Figure 4: When to Take Social Security