The retirement calculator does these calculations by accounting for the retirement assets you already have:

* savings in a retirement plan such as company retirement plan or IRA
* monthly income you will get from a government pension or from social security or retirement deferred comp plan
* non-retirement assets that you have: equities, debt instruments, mutual funds, notes, etc.
* usable equity in your house you might have available if perhaps you plan to trade down and free up equity for investing or take a reverse mortgage

The retirement calculator also takes into account the age at which you wish to retire and your estimated life expectancy. While you may be thinking like the biggest input is the financial resources you bring into your retirement that will impact your retirement comfort, it is really not these financial facets. The biggest influencers of your retirement success are your retirement age and the time you spend in retirement. Therefore, when using a retirement calculator, we propose you play the scenario several times using different life expectancies and also see what happens when you adjust your retirement inception from say age 64 to age 66. You may be shocked at the difference you see.

The best retirement calculators are usually NOT those run across on-line. The best ones are software that you buy (not very expensive) as they provide for much more refined output. For example, while the free online retirement calculator will give you an forecast of the amount you require to put away or the nest egg you need to fulfill your retirement income goals, the bought retirement calculators often engage Monte Carlo simulations to provide multiple future possibilities. Different from the free online retirement calculator that generates ONE average outcome, Monte Carlo models produce an array of possible results with their odds. You can hence experience the probability of a specific retirement-planning scenarios happening.

Be aware that any retirement calculator has failings because it must rely on suppositions like:

1. Anticipated annual returns for the asset types you select (e.g. equities, bonds, etc.). Some retirement calculators ask you for these estimations while others have hard coded assumptions. Either way, if the forecast is that equities yield a 10 percent return over the next thirty years and they produce an 8% return, your retirement may not go as anticipated.
2. forecasted assumptions about asset class unpredictability and correlations with other classes may not be as forecasted. For instance, even if equities are presumed to generate ten percent yearly returns over your retirement years and so they do, if the stocks lose 8 percent for each of the first 3 years of your retirement, your retirement goals will still not be achieved because the order of returns has an important impact on your retirement calculations.
3. No person knows what income tax rates we will have. When you make your estimates, it is best to assume that rates will be higher in the future (how else can the US government close the deficit)?
4. No person knows what the inflation rate we will have. Closely associated to this is the value of the US dollar and most retirement calculators do not account for that. If you hope to travel abroad in retirement and the US dollar is worth twenty percent less, then it means your travel costs abroad can cost you 25% more. The value of the dollar plus the impact of domestic inflation are two other uncertainties that a retirement calculator may not provide for or may need to rely on estimations that prove wrong.

But before you come to the conclusion that employing a retirement calculator is a waste of time, we urge you to reconsider that decision.

By going through the exercise and taking into consideration the factors and seeing how the various retirement factors interact, any retirement calculator provide you with a lot better sense of realism for your retirement goals

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