Last month’s post on the best free retirement calculators had the most comments ever on this blog. There were many good technical questions, a number of helpful suggestions, and even a bit of controversy. People are clearly fascinated by this topic. And for good reason. Retirement calculators are fundamental to retirement planning, playing a key role in one of our most important life decisions. So it only makes sense to understand and evaluate them well, before we trust in them.

That first article was a lot of effort, but the ensuing discussion showed me that there was still more work to be done. So this article will broaden the review of free retirement calculators in a couple of ways:

**First**, I realized that the particular scenario you find yourself in — which dictates the input data to the calculator — has a big impact on your experience with the software. Most calculators have different strengths or weaknesses that stand out depending on the scenario. A major distinction between scenarios is whether it’s a *pre-retirement* or *post-retirement* situation. And the scenario I used in that first article was post-retirement, so this article will use an all-new pre-retirement scenario, to see if we can learn something more about the best retirement calculators.

**Second**, readers nominated some worthy additions to my list of the “best” free calculators. Some of the reader suggestions were familiar to me, but some were new faces. Maybe a new scenario would let them shine? Ultimately the purpose of these articles isn’t to pit calculators against each other. We simply want to get the best tools on the table, so we can compare usability and results, then choose according to our needs.

So I am happy to exercise all these calculators together now and report the results back to you: Read on below to find out how both the old and new calculators fared, and then what conclusions we can draw about retirement planning in general by seeing all of their results together….

### The New Scenario

First, let’s understand the new, pre-retirement scenario, which introduces several additional factors to be modeled:

We start with a couple: he’s 55, she’s 50, both still working. He makes $70,000/year; she makes $30,000/year. They both plan to work 12 more years, then retire, when he’ll be 67 and she’ll be 62.

At retirement, she’ll begin taking Social Security, receiving $800/month or $9,600/year. He’ll wait until age 70, and receive $1200/month or $14,400/year. (Actual Social Security benefits could be higher, if they’d earned those salaries for a full career, but these values are closer to the national average.)

Their living expenses are $4,500/month or $54,000/yr, not including taxes. As long as they’re both working, they’ll save $2,500/month or $30,000/year, in traditional retirement plans. After that, they will need to draw on their savings.

Their current portfolio of exactly $500,000 is 100% invested in a traditional, tax-deferred retirement account, with an asset allocation of 50% stocks and 50% bonds. Using low-cost index funds, investing fees are negligible. Given today’s economic conditions, we’ll assume a historically low 8% average annual return on the stocks, and a 4% average annual return on the bonds (or a 6% average annual return for the entire portfolio).

Because inflation is a serious concern now, we’ll use a historically high inflation rate of 4.0%, also assuming Social Security receives a comparable cost of living adjustment. (Though the political reality is that it could well be less).

For simplicity, we’ll use an effective overall tax rate of 10% both before and after retirement. (It’s likely that rate would be higher before retirement, and lower after.) And again to keep things simple, we’ll assume that all of the Social Security is taxable, though in reality only some of it is. Note that a few calculators can handle more sophisticated tax modeling than this, but most can’t. At any rate it will be easier to compare the results if we keep the input relatively simple and consistent.

We’ll use a planning horizon of 45 years, to age 100 for the man.

*So, is this couple on track to retire?*

### The Calculators

To analyze this scenario, we’ll again use the Ultimate Retirement Calculator and the Flexible Retirement Planner, recommended in the last article. These are both fine tools that again did well in this scenario. With either one you can start simple and then refine a calculation with more data, if you wish:

The Ultimate Retirement Calculator particularly shines in the ease and speed of data entry, using a single input page for what is a fairly rich underlying model. It handled our new scenario with ease and quickly generated results. You do need to exercise some care not to make input mistakes, though the restatement of input data in the output makes it easy to check your work. And the excellent, tabular output makes it easy to see and understand how the program is getting its results.

The Flexible Retirement Planner has similar excellent data input, with a few additional input pages if desired. It also provides on-screen tabular result output so you can see how it is getting results. And the Flexible Planner adds on to that a very informative graph showing your portfolio value and other parameters over time. It particularly excels in the power of its modeling options: You can do a conventional cash flow simulation or add standard deviations to get probabilities of success. The Flexible Planner continues to be a trustworthy and flexible option for retirement planning.

For this scenario, I decided *not* to use the Vanguard Retirement Nest Egg Calculator. It’s a neat little calculator, but its forte is demonstrating how long a lump sum of money will last under different market and drawdown conditions. That lends it to simple post-retirement scenarios. It doesn’t have built-in options for modeling additional cash flows (like savings or Social Security) before or during retirement. You can compute present values and add those to the lump sum but that gets messy pretty quickly, whereas the other calculators handle such cash flows with explicit input fields. In short, this particular offering from Vanguard would be out of its element in this scenario.

Next I added three other calculators, based on reader suggestions, to analyze the new scenario for this article:

FIRECalc — One of the very first calculators to offer a probabilistic analysis, by default the program does a rolling historical analysis using economic data that goes all the way back to 1871. In essence, it analyzes how your retirement would have fared if you had retired in each possible starting year from the past. FIRECalc also offers a number of other simulation and modeling options, making it a very powerful calculator. Though the input screens can be difficult to read, and some of the underlying data may not have been updated recently, FIRECalc continues to enjoy a devoted following.

SmartMoney Retirement Planner — Offered by Dow Jones and part of the Wall Street Journal digital network, the SmartMoney calculator has a strong pedigree, and a beautiful, enjoyable user interface. Click a few tabs, slide a controls, and you’ll have your results. There are simple input screens for your personal information, your held assets, future income, and retirement spending. In many cases you can enter aggregate values, then apportion them later for more accuracy. A collection of advanced settings let you further tweak the analysis, if you wish. This is a very impressive effort with one of the best retirement modeling interfaces available. However, I would have appreciated easier access to its underlying modeling assumptions: little information appears to be available.

T. Rowe Price Retirement Income Calculator — One of the most widely recommended calculators, T. Rowe Price’s offering also features a beautiful and intuitive interface. First you step through several relatively simple screens that collect information about you, your retirement savings, and your asset allocation. Then the program displays a picture of living in retirement. It uses a Monte Carlo simulation under the hood, and lets you change parameters on that last screen, then compare the results from different scenarios. Though the program is very popular, be aware that it does contain a number of built-in assumptions such as the inflation rate, investment returns, and the timing of Social Security, that may not necessarily suit your needs.

### The Results: Pessimistic to Optimistic

Retirement modeling can be a tricky proposition. Each calculator has a different set of inputs and makes a different set of assumptions. Even the simplest scenarios require modifications or adjustments to match the inputs of a given calculator. Beware that this is nowhere near a precise science.

In an effort to ensure consistent results, I ran the new scenario in each calculator twice, on two separate days. Then I reviewed the results again, with some expert help, on a third day.

So here are the results from each calculator, in order from the most pessimistic to the most optimistic, with relevant notes:

Calculator |
Results |
Notes |

Flexible Retirement Planner | 66% Probability of Success Median Ending Portfolio: $753,821 |
Returns standard deviation: 4.3%. Ending portfolio of $129,053 in constant dollars has been adjusted for inflation. |

FIRECalc | 70% Success Rate Average Portfolio: $844,873 |
Returns: historical since 1871. Taxes modeled by increasing expenses. |

T. Rowe Price Retirement Income Calculator | 83% Chance Savings Will Last | Real returns: stocks 4.9%, bonds 2.2%. Taxes modeled by increasing expenses. Optimistic: inflation/salary +3%, Social Security too early? |

Ultimate Retirement Calculator | Savings Surplus Ending Portfolio: $1,086,889 |
Optimistic: fixed rate of return. |

SmartMoney Retirement Planner | Can Afford to Retire Ending Portfolio: $1,358,000 |
Optimistic: fixed rate of return. |

*What’s the bottom line? Is this couple on track to retire?*

The two most pessimistic calculators for this scenario — the Flexible Retirement Planner and FIRECalc — show success rates of only 66% and 70% respectively. Most experts recommend that you aim for a success rate of at least 80%-90% in retirement planning.

The T. Rowe Price Retirement Income Calculator incorporates fixed values for inflation and Social Security that are more optimistic than specified in our scenario.

The two most optimistic calculators — the Ultimate Retirement Calculator and SmartMoney Retirement Planner — do not incorporate a probabilistic analysis, and thus may be overlooking the effects of market volatility. (Note you may be able to compensate for that, if desired, by reducing investment returns further.)

### The State of the Art

Perhaps the most important aspect of this entire exercise is to simply note *the substantial variation in results.* There is nearly a **factor of two** difference in the size of the ending portfolio between the most pessimistic and optimistic retirement calculators!

Let’s consider an engineering analogy. Suppose you asked a structural engineer to design a bridge, and they came back and said *“Well, I’m pretty sure those girders need to be somewhere between 2 feet and 4 feet thick. And I’m between 66% and 83% confident it won’t fall down.”*

How would you feel about that engineer’s competence? How would you feel about driving across that bridge?

Well, we’ve just run some of the best free retirement calculators available, from some of the biggest, and best, names in the business. But the answers vary by nearly 100%! That is the state of the art in retirement planning. And probably always will be.

Why? Because there is no precise answer to the retirement question. That’s because retirement planning is not an *equation *to be solved — it’s an attempt to predict or *model* the future.

Getting advice about retirement is akin to seeking answers about who you should marry, or how you should raise your children. No other person can give you a precise prescription. To the extent there is any answer, it’s going to be heavily influenced by your own personal values, beliefs, and resources.

Ultimately, you need to consult a range of trusted sources — these free retirement calculators are a good start — then make your own judgment call….

Nice work! I’m glad you added FireCalc because it’s my favorite.

I wish somebody would write a Aggregate Retirement Calculator that would feed input into all the various calculators and tabulate the results like you did in the table above.

Thanks rjack. FireCalc is a worthy addition. Even for those who don’t want to rely on the historical data, it has other simulation options for portfolio return such as consistent annual market growth or random performance (using standard deviation).

And yes, that Aggregate Retirement Calculator is a business idea waiting to happen! It’s been on my list for a while. After I finish my books and several other projects.

Darrow, thanks for the interesting analysis!

I don’t believe in making forecasts myself, but I do find tools like these helpful for making better decisions today. Like, am I saving enough? Or, will my asset allocation get me in the ballpark. I make a recent video article on my website http://financinglife.org/planning-tools/simple-planning/ that uses the Flexible Retirement Planner tool as an example for a young woman wondering: Am I On Track?

Finally, I worry that too much weight can be placed on meeting a success of 90% or 100% success rate. William Bernstein once commented that “Any estimate of long-term financial success greater than about 80% is meaningless.” His reasoning is that it presumes long periods of economic, political, and military continuity that we have not experienced historically. For instance, a 97% success rate for 40 years means a 3% failure rate, and those 40 years divided by 0.03 is 1,200 years. You can read his perspective http://www.efficientfrontier.com/ef/901/hell3.htm .

That said, I still find tools like you reviewed useful for making decisions in front of us today. Just recognize their limitations.

Thanks for dropping by Rick! I really appreciate your insights. I watched your video a while back and thought it was excellent. And I agree with your approach to forecasting.

Thanks for the link to Bernstein, a favorite. I’d read that article some time ago, but was happy to get a refresher. Bernstein’s argument, as I understand it: Even the wildly optimistic wouldn’t count on more than a couple of centuries of the kind of stability that could guarantee income over a 40-year retirement period. So one in five retirements (200/40) or 20% will derail because the surrounding environment changes dramatically. Thus you can never reach a long-term financial success rate greater than 80%. Fascinating.

I find probabilities intuitive for assessing behavior in the real world. Maybe it’s because I’m a life-long rock climber and assessing risk is essential to staying well in the mountains. But, whatever the conceptual odds, you have to know that on any given day, or any given retirement, there are no guarantees, and no substitute for keeping your eyes on the terrain!

Yes exactly. Perhaps the climbing metaphor for investing is that of climbing a route that you have not climbed before, and there are no reliable accounts for what lies ahead. You must rely on good common sense principles to protect you in the case of a fall. I’ve posted short video explanations of the common sense principles for investing at http://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy and also http://FinancingLife.org . But I digress. Thanks again for your terrific post. Keep it up. Stay safe, but enjoy the mountains!

Thanks Rick!

And remember, if you don’t know what the fees will cost you for the funds you select,

you may never have enough in your pot of gold to enjoy your retirement. Go to:

http://www.401Kfee.com/how-much-are-high-fees-costing-you

.

I have heard of Flexible Retirement Planner, Vanguard Retirement Nest Egg Calculator, and SmartMoney Retirement Planner; however, I have not tried using any of them. I am currently using T. Rowe Price Retirement Income Calculator. Thank you for your wonderful post and sharing these great information.

Thanks for including the Ultimate Retirement Calculator in your review. I’m glad to see it handled the test scenario well.

As before, you show an uncommon grasp of the limitations and values of retirement calculators.

I would like to add a couple of thoughts to this discussion if that is okay…

The good news is retirement calculators make the math of retirement planning accessible to the masses where otherwise it would be too complicated. In other words, any retirement goal created by any of these calculators, even an inaccurate one, is better than no retirement goal.

Unfortunately, many people falsely believe the mathematical projections of all retirement calculators (mine included) as having scientific validity instead of a mere algebraic projection thus perpetuating the dangerous “magic number” myth. That is the ugly downside of retirement calculators.

You mentioned two important ideas in this article that might be interesting to develop more fully in future articles. The first is this whole idea of optimistic vs. pessimistic analysis. Really, you are just dealing with a math truth and nothing more. In short, any calculator that uses average returns unadjusted for volatility will provide a more “optimistic” output than a comparable calculator using actual historical return due to the volatility effects of compounding.

You correctly state this point briefly in both this article and the previous; however, I think this point could be developed more fully to really help people see the critically important points and the depth of implications behind this idea. It is fundamental to getting the investment return assumption input correct.

I chose average returns for my calculator intentionally because it gives the user full control over input assumptions. As you correctly stated, if they want to adjust for volatility then just lower the average return. The effect is the same.

The reason I chose this approach is because the probabilistic output contained in the other calculators is dangerously deceptive. People are falsely led to believe that an 80-90% probability of success is good when nothing is told about the historical circumstances that surrounded the 10-20% of failures.

As it turns out, a careful study of the data shows market valuation, interest rates, and inflation at the time retirement began were all highly correlated to the risk of failure. It is not random. These concepts are developed more fully in research by Michael Kitces, Wade Pfau, and Ed Easterling (among others) and summarized in my book.

As it turns out, we are sitting right now with circumstances dangerously akin to that 10-20% high risk window! Unfortunately, probabilistic calculators using historical data treat all time periods as equal when they clearly are not thus totally masking the real risk. Very, very dangerous and a very deceptive application of statistics that should be avoided.

I believe it is far wiser to avoid historical confidence intervals that have little to do with today’s data and can hide your true risk. Instead build your own confidence interval based on realistic assumptions given what today’s data implies mathematically about the future.

I know this will stir up controversy, but that is why I believe any of the calculators that provide their own investment return based on historical data input and give probability based analysis should be avoided unless the expected investment return is based on current economic data. This is not mainstream thinking but the research is clear on this issue.

Finally, I wanted to add that I find the most useful way to apply retirement calculators is for putting numbers behind life planning decisions. For example, what happens to my assets if I consult for 7 years? What happens if I sell my 2 rental homes instead of keeping them for rental income? What happens if I switch half my assets to fixed annuities? If I reduce my expenses by 1K per month? Develop a sideline income during retirement that pays 3k per month? And on and on and on…

This type of approach, which I call “scenario analysis”, can change lives and rescue retirements that were in serious danger plus it can illustrate critically important principles about retirement planning that many retirement calculators hide.

I hope this adds some helpful ideas to the discussion, and thanks again for your insightful analysis. I’ve read many reviews of retirement calculators – mostly lacking – and yours shows a deep understanding of the critical issues.

I hope these ideas add to the discussion. Great work!

Thanks for the excellent and insightful comments Todd. Your points stand on their own, and add significant value to the discussion here. Much appreciated!

For those deeply interested in this topic, it probably makes sense to separate the discussion of how to model volatility — probabilistic analysis or not, from the discussion of the appropriate real returns to use given the era you find yourself in when you retire. Retirement calculators don’t necessarily need to conflate those two concepts into one input.

If I had it to do over, I might be more precise about characterizing the particular calculation

resultsas optimistic or pessimistic, rather than thecalculatoritself. Though note that some calculators do use fixed rates or algorithms that give them an optimistic or pessimistic bias.Your illustration of

scenario analysisis invaluable and very well put.Thanks again Todd!

Thanks for putting these together. I was happy to find the Vanguard retirement calculator. Have an account there and didn’t know that tool existed.