Which retirement planning calculator tells you how much money you'll really need for retirement? Which retirement planning calculator contains a fatal financial flaw that affects every senior and could cause you to outlive your income? Or, is every retirement planning calculator flawed?
Even the best retirement planning calculator for seniors will ask you to guess the age when you might die in other words, your life expectancy. (Because so many seniors live past 100, the insurance industry now estimates that our maximum life expectancy is 120 years.)
Often, a retirement planning calculator for seniors will also ask you to guess the future rate of inflation without giving you a clue as to what might be reasonable. Or, the retirement planning calculator will use a built-in financial assumption for inflation that it does not bother to tell you about.
If your financial planning is wrong with either number, you may live like a king during the first few years of retirement until you run out of money and have to go on welfare, living the rest of your retirement in poverty. But, if your financial planning is right, you can enjoy a solid, sustainable lifestyle throughout your retirement, with money left over for your heirs.
No one has a crystal ball. So, we have to base our projection on historical data. Since 1950, inflation has averaged 3.9% annually, ranging from a low of -0.5% in 1954 to a high of 13.3% in 1979. (If 1950 is too far back for you, inflation has averaged 4.4% annually since 1960, 4.8% since 1970, and 3.4% since 1980.)
You can make a huge financial mistake if you use your remaining life expectancy to estimate how long your income should last. By definition, life expectancy is an average for ALL people half of us will live longer. In other words, life expectancy has only a 50% probability of being correct.
The reality? 11% of today's 65-year-old men and 19% of today's 65-year-old women will reach age 95. For every four 65-year-old couples alive today, one person will live to age 95.
When doing your financial planning, you want to be as certain as possible, without overdoing it, that you won't outlive your retirement income. To accomplish that, we recommend that you base your plans on a 90% probability that your income will last for the rest of your life.
On the other hand, some people may want to be less conservative. (Less conservative means a higher monthly income, but with less certainty that it will last for the rest of your life). As a result, we've calculated the anticipated lengths of retirement for all ages from 55 through 90, at both the 80% and 90% probability levels, and the average life expectancy for the same ages.
To see the charts on the next page, and the retirement calculator we recommend, click on retirement calculator.