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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:

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….