Tips For Choosing A Retirement Income Calculator

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What is one of the most important parts of retirement planning ?

How about figuring out how much income you're on track to receive?

It not only wins the curiosity sweepstakes -- who doesn't want to know how much income they're likely to get in retirement? -- it also is a key to figuring out if your nest egg will be big enough.


"Calculators help someone understand if they're on track for the income they'll need," said Judith Ward, a senior financial planner at T. Rowe Price.

Online calculators are easy to find. Just remember that not all make the same assumptions. Many follow different rules when they crunch your numbers.

Look at T. Rowe Price's calculator, for example. If you scroll down its Web page, you'll find its assumptions spelled out.

T. Rowe Price assumes a 4.9% annual rate of return in excess of inflation on stocks in your portfolio. One thing you do, as you start to use this calculator, is indicate what percent of your portfolio consists of stocks during your work years. You also specify your stocks-bonds-cash mix for retirement.

In contrast, CalcXML's 401(k) income calculator lets you specify what rate of return you want to assume. And it lets you select other assumptions, such as rate of inflation.

But it does not disclose the asset allocations that go into its conservative, moderate and aggressive income projections. So you might have trouble figuring out which most resembles your portfolio.

With Or Without

The T. Rowe Price calculator lets you include or exclude your projected monthly Social Security benefit. At CalcXML, you must switch to other calculators to see the impact of Social Security.

That's actually a strength of the CalcXML site. It offers a wide choice of specialized calculators.

AARP's calculator lets you plug in your own estimate of your monthly Social Security benefit, use AARP's estimate or use a link to the government's Social Security calculator.

"Choose a calculator by asking what you want to achieve," Ward said. Simple calculators are fine for a quick look at your retirement readiness. For more precise planning, use a calculator that lets you input more details.

Fidelity Investments offers a menu of calculators. One does the math for people who are more than five years from retirement.

It can link to your Fidelity and non-Fidelity accounts. You can click on links that will show underlying assumptions. The Fidelity calculator's next-to-last stage shows your income at retirement vs. the estimated amount you'll need. The final stage recommends what to do if your income is heading for a shortfall.

Calculators With A Purpose

Fidelity's calculator for people in or near retirement shows options for generating income. Some involve buying an annuity. Others let you retain ownership of your assets by taking income from bonds, stocks and cash.

"Knowledge is power," said John Sweeney, executive vice president, Retirement and Investing Strategies for Personal Investing, a unit of Fidelity. "We offer different calculators so people can focus on the factors that matter more to them.

"If you're in the asset-accumulation stage, we offer calculators that focus on those strategies," he added. "If you're in the distribution stage, we can point to different strategies for people with different goals."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Mutual Funds

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