The retirement calculator does these computations by taking into account the retirement assets you already own:

* savings in a retirement plan such as company retirement plan or individual retirement account
* monthly income you will have from a pension or from social security or retirement deferred comp plan
* non-retirement assets that you have: stocks, debt instruments, mutual funds, notes, etc.
* usable equity in your house you might have available if perhaps you plan to buy a smaller property and free up equity for investment or take a reverse mortgage

The retirement calculator also takes into account the age at which you want to retire and your forecasted life expectancy. While it may seem like the largest issue is the financial resources you bring into your retirement that will bear on your retirement comfort, it is really not these financial issues. The biggest impactors of your retirement success are your retirement age and the number of years you spend in retirement. Therefore, when employing a retirement calculator, we recommend you test the scenario several times using different life expectancies and also see what occurs when you vary your retirement start from say age sixty four to age 66. You may be shocked at the difference you see.

The most superior retirement calculators are typically not those run across on-line. The best calculators are software that you purchase (not very expensive) as they allow for much more sophisticated analysis. For example, while the free online retirement calculator will provide you an estimate of the sum you require to save up or the nest egg you require to meet your retirement income objectives, the bought retirement calculators often employ Monte Carlo simulations to take into account a variety of future outcomes. Different from the free online retirement calculator that provides ONE average outcome, Monte Carlo models produce a range of possible results with their probabilities. You can hence see the probability of a particular RETIREMENT PLANNING scenarios occurring.

Note that any retirement calculator has weaknesses mainly because it must rely on assumptions like:

1. Expected annual returns for the asset classes you choose (e.g. stocks, bonds, etc.). Some retirement calculators ask you for these estimates while others have built in assumptions. Either way, if the forecast is that equities produce a 10 percent return over the next thirty years and they generate an 8% return, your retirement finances may not go as anticipated.
2. Anticipated suppositions about asset class movements and correlations with other types may not be as forecasted. As an example, even though equities are estimated to generate ten percent yearly returns over your retirement and they do, if the stocks lose eight percent for each of the starting 3 years of your retirement, your retirement financial objectives will still not be achieved because the sequence of returns has an important impact on your retirement calculations.
3. No one knows what income tax rates we will have. When you make your assumptions, it is best to assume that rates will be higher later on (how else can the government close the deficit)?
4. No one knows what the inflation rate will be. Closely associated to this is the economic value of the United States dollar and most retirement calculators usually do notaccount for that. If you want to travel outside the US in retirement and the US dollar is worth twenty percent less, then it means your travel costs abroad can cost you 25 percent more. The value of the US dollar plus the affect of domestic inflation are two other unknowns that a retirement calculator may not account for or may need to rely on estimations that prove wrong.

Before you come to the decision that using a retirement calculator is a waste of time, we encourage you to reconsider that decision.

By experiencing the exercise and thinking about the components and seeing how the different retirement parameters interact, any retirement calculator will give you a much better sense of realism for your retirement objectives