Should you Trust Retirement Calculators?

by | Sep 14, 2022 | Blog, Videos

In this week’s video, Casey talks about the assumptions retirement calculators make and how they might not apply to everyone.

There are certain assumptions that have to be made when planning for retirement, but what happens when life changes? Or when those expectations don’t actually pan out?

Your life is so much more than nuanced than the “average statistics” so shouldn’t you plan accordingly?

Show Notes

How Much Can You Spend in Retirement? Answer These Questions First – The Wall Street Journal

How Well Do Retirees Assess the Risks They Face in Retirement? – Center for Retirement Research at Boston College

Financial Calculators: What You Don’t See

Should you Trust Retirement Calculators? – Full Transcript

**Click here for a full downloadable PDF version of this transcript**

Casey Mullooly: In episode 308, we talk about retirement calculators and how they might do more harm than good.

Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly, back with you here for episode 308. Happy to be here. A piece came out from The Wall Street Journal this week, they’ve been having some really thought provoking articles about retirement planning and how to think about retirement, so go check those out.

This week’s article asks the question of how much can you spend in retirement? If you’ve watched or listened to any of our videos or podcasts, you know that the answer to this question is it depends. So unsatisfying, but it’s the truth. It really does depend on your specific set of individual circumstances.

The article goes on to talk about how these retirement planning calculators you can find in your 401k plan or at these bigger institutions where you just answer three or four questions, you pop in some numbers, and then it tells you whether or not you’re on track, the article goes on to talk about how the assumptions that these retirement calculators make, mainly the ones about being in good health, that you don’t want to leave your money behind, that you’ll claim social security as soon as you retire, that these broad assumptions that they make really only apply to 4% of retirement investors out there. Just 4%.

Yet, they’re asking the same questions and they’re making the same assumptions about everyone. The biggest factors in retirement planning are your health, the timing of your retirement, whether or not you claim social security as soon as you retire or at full retirement age or at age 70, your lifestyle in retirement, your risk tolerance, and whether or not you want to spend down all of your money or leave some behind to your children or other beneficiaries. There’s a lot of moving parts.

It’s pretty, I think, misleading to just paint all of retirement savers with that same broad brush. I’ll take it one step further and offer that those answers are probably going to change over the course of a 20 or 30 year retirement. Life expectancy and how long people live is the biggest question of all, and it’s impossible to answer. The research has shown that people are not so great when it comes to estimating how long they’ll live, which has a big, big impact on how they spend their money in retirement.

According to Boston College’s Center for Retirement Research, 64% of women age 65 to 69 think that they will live to age 80 or beyond. The reality is that it’s actually more like 78% of them will live to age 80 and beyond so a pretty big discrepancy there, but your life is so much more than a life expectancy table. Your life is so much more than the average statistics. You’re not a statistic and your life is so much more complicated than that too.

That’s exactly my point is that using these broad assumptions and that using these average statistics is it can be misleading and it can cause people into a false sense of security or not when it comes to planning for their retirement. These retirement calculators are a good starting place for people, but be careful because they make a lot of assumptions that aren’t really clear to the end user, and those assumptions don’t necessarily apply to your specific situation. That’s going to wrap it up for episode 308 of the Mullooly Asset Show. Thank you as always for tuning in, we’ll be back with you next week for episode 309.

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