Results from online financial calculators are not equal. But, why do the results differ? Usually, it is because different assumptions were used. That is, the calculators control the variables in different ways.

Performing complete and accurate calculations well is difficult, and thus designing a web-based calculator can be expensive. The variables a retirement calculator must address include rate of inflation, rate of return on investment, life expectancy, how much of current salary you need to support yourself at retirement, and social security benefits. Some calculators offer Monte Carlo simulations (click here for an explanation of Monte Carlo Simulation ) to help you predict your retirement funding. On this, my vote is to ignore the Monte Carlo simulation for the same reason many websites will tell you not to count on past returns as to predict your future investment results.

Some calculators allow you to alter their assumptions. However, none of them is able to accommodate either decreasing spending in later years, which is typical of most people during retirement, or the cost burden of major health problems. Any attempt to address these issues would be quite costly.

Others take an easy out by limiting variables, e.g., keeping your contributions flat. This facile solution provides little insight into what your retirement savings will actually look like because it ignores your ability to save more as your income increases. Also, by assuming flat contributions, your need to act will look more urgent due to the big shortfall in saving to meet your retirement goal. The company using this assumption may hope you contact them to help you solve the retirement problem that their formula, in part, has created. A calculator that assumes annually increasing savings makes more sense.

We have designed formula for the website we launched in 2015 (then took down in 2016). Our approach allowed you to alter almost all variables. This may or may not be a good thing, as shifting some variables too much could lead to unrealistic results and misdirect you. Nonetheless, this approach should allow you to test all of your concerns so you can establish a good retirement strategy.

In the end, using any of these calculators gives you a sense of where you stand //vis a vis// your retirement goal. If you are far off, it gives you impetus to act so you get on track; and if you are on track, then you it gives you a sense of security. For me, the most important result from using any calculator should be assessing and sticking to a good strategy for saving and investing with a long-term perspective.

Here are links to the most popular retirement calculators, which will come up in a web search:

Why do you feel that Monte Carlo simulations are not useful? It seems to me they give you a good sense for the range of possible outcomes based on the historical uncertainties of market returns, rather than assuming a specific rate of return.

Yes, but they relay on history, not predictions of future returns.