Estimating Retirement Income Needs – A Waste of Time?

Emily Brandon over at the U.S. News & World Report’s Planning to Retire Blog recently wondered if online retirement calculators were helpful or useless. In her post, Emily references a post by Salon’s Heather Havrilesky titled Perspire to Retire!, in which she basically blames online retirement planning calculators for screwing up her retirement plans:

…one day I decided to try out an online retirement calculator, just to reassure myself that we were well on our way to not just a secure financial future but also a rosy one. I plugged in my age (38), my current retirement savings (respectable), my desired income upon retiring (50K) and a few other figures, and pressed “calculate” with a little smile on my face, ready to be praised for my prudent savings and congratulated on the happy, golden years ahead.

Instead, I read these words:

“To retire with an inflation-adjusted retirement income of $50,000 for 20 years would require $3,075,744.65 in savings by the time you retired at 65. You need to save an additional $47,613.58 each year to reach your retirement goal.”

Sweet Jesus. Three million dollars? Forty-seven thousand dollars a year? How is that even possible?

I don’t know what numbers she was plugging in because I got nowhere near the numbers she claims the calculator gave her—no matter how much I played around the with calculator. I did notice the retirement calculator’s default inflation rate is 4%, which seems a bit high based on the long-term historical average. I even plugged her info into my retirement planning calculator and I got nowhere near her numbers.

Anyway, I don’t think retirement planning calculators are useless. Just because they say people need to save more than they think they do, doesn’t make them bad. I mean, would you rather have a false sense of security rather than the truth? People NEED TO WAKE UP and realize that retirement will be more expensive than they think it is—especially if they want to do more than hang out at the local bingo joint.

I guess my point is: don’t let them get you down. Save as much as you can and DON’T WORRY ABOUT IT!