Money Schooling

Finding a retirement income calculator that is right for you can be a tall order.

The reason for this is because there are some many variables to consider. There is no one retirement income calculator out there that can do it all and every individual has a different vision for retirement.

Here is a list of variables that can go into determining a retirement income and the decisions making process -

• Current age
• Projected age when income substantially changes
• Will working part time be required or will it just be nice to have a little piece of extra income coming in and keep busy
• Number of years to save
• Estimate of amount invested annually for retirement purposes
• Current retirement investments
• Projected growth of these investments over the saving years (interest rates, inflation)
• Anticipated large investments that might take place before or during retirement for example: purchasing a retirement home, motor home
• Anticipated ongoing loan commitments for example: home or vehicle
• Anticipated additional income from a will
• Will there be a pension amount coming from employment and at what age is it available
• Will there be a state pension available (from years of working) and at what age is it available
• Will there be supplementary government funds available (old age security), usually payable at age 65
• What impact does being married have on individual income or total income and how does this change when one partner dies
• What income tax will be payable under all the above scenarios

Ideally all the above variables need to be factored into a retirement income calculator, such that projected incomes for different lengths of retirement years can be analyzed and presented. This is often known as a ‘What If’ analysis.

Assumptions that are often made are

• 30 year life expectancy after retiring
• Inflation rate that is below current levels
• Interest rates that are above current levels
• No extra money from a will
• No large capital expenditure for a vehicle or house
• Income require to be 60 to 70% or current income

Things to remember

In order to understand the value of money, estimates made using a retirement income calculator always have to be projected back from the future to current day dollars as if you were receiving income as of today.

Update any projections made every three to five years, or when it is known that some significant change has taken place that will affect your retirement decisions.

Retirement income calculators are available as self help tools for independent use and are not intended to provide investment advice.

Finally, retirement income calculators are just a tool to help you make better decisions about your retirement. At the end of the day, it is advisable to work with a financial adviser who is familiar with not only investment tools, government rules and regulations, but also versed in the general ways of the world and can offer you additional common sense advice.

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