If good retirement planning for seniors or anyone for that matter required only the output from a trusty financial calculator, then why would we ever need an advisor? If you look on the internet, you can almost get overwhelmed with the vast array of financial, retirement and mortgage calculators offered. And most are free tools, sort of.
The role of a good retirement calculator is a first step view of your retirement needs from the perspective of about 20,000 feet. It is a broad view. The key to success lies in your ability to dive into the planning details, establish a practical plan based on reality and preserve your ability to adjust it as needed over time.
Think of it…most businesses and government agencies cannot forecast their revenues or expenses accurately one year in advance yet “certified planners” suggest you should project your needs 15-20 years into the future. Even if you put just a basic plan in place, you don’t know what your health will be. You don’t know if your job will still be there. You don’t know the situation of spouse, children, parents and extended family. And you certainly don’t know how much the government will want from you check before you get what is left.
All of this simply highlights that retirement planning is a process not an event. And the financial calculators can be a useful tool in that process. Most calculators offered on the internet are similar in function and are offered with one slight obligation which is that you will experience just enough guilt or gratitude to meet with the company representative offering the calculator.
So download a calculator or two and play around with some scenarios. In the process you may meet an advisor that can bring meaningful value to your plans. Start with your current age and project a couple of different retirement ages such as 60 years old and 70 years of age. The calculator will ask about your income now, how much income you would like to have at retirement and what you have saved currently. What you will get is an estimate of what you will need to save to get the income you want. But now the real visionary work begins.
Your life is so much more than a number in a calculator. Don’t assume your life ends at 60 or 70 or even 80. Start a new vision or re-vision in every dimension of your life. What dreams do you have? Start a business, travel, plant a garden, build something out of wood, or find a new mate.
Retirement planning is not just an exercise in accepting limitation, regret and frugality. It can be the door to the most productive time of your life. It can be a time of discovery. It can be a time when you realize that your happiness isn’t dependent on anything external but an incredible journey to an understanding of who you really are.
Start the journey. Take a step. Use the diverse financial calculators and their planners as a guide and then make adjustments along the way so you stay on course. Most importantly have fun today because tomorrow is not guaranteed to anyone.
So, you have done your due diligence to assess your retirement financial situation. You have been on-line to understand your sources of retirement income. You have made an attempt to calculate your expenses and you have some vague idea of what you savings will be when you retire. Now what?
While there is no shortage of articles and books written on the topic of retirement financial planning, it is still very difficult to put all of the pieces together. Even when you have collected all of the pertinent information, the final answer is still unclear. What to do?
Behold, the retirement financial calculator. These calculators vary in their sophistication and the level of information they provide. However, their single focus is to answer questions about your retirement financial security. Among the questions are:
- How long will your savings last.
- What are the annual spending limits based on you income, expenses, and savings?
- What if inflation is more or less than you expect.
- What if the investment returns on your savings are more or less than you anticipate.
Some financial calculators are more comprehensive than others, but the general focus is to try to anticipate your situation in retirement. In their most basic form, financial calculators are mathematical computer programs that link the basic factors related to your financial success with information specific to your situation.
THE BASIC FACTORS AND THEIR LINKAGES
So, what goes on in the bowels of the typical retirement financial calculator? First, all of the factors that you have read about relative to retirement finances affect each other is some very complex ways. Let’s take a look these factors and how they interrelate:
RETIREMENT INCOME is derived from sources such as Social Security, Pensions, and post-retirement employment.
RETIREMENT EXPENSES are what you spend to maintain your standard-of-living.
HOW THEY INTERRELATE: If income is greater than expenses then you are good to go, at least in the shortterm. However if expenses are greater than income, then you have a shortfall. Retirement savings are one resource you have to cover this shortfall. The question is how long savings will be available to do this.
Income, expenses, and estimated savings are all basic inputs into most financial calculators. If this was all you had to worry about, it would be simple. In a simple world, let’s say that you have saved $500,000 for retirement and your annual shortfall is $20,000. In this case your savings should last for 25 years ($500,000 savings/$20,000 shortfall each year = 25 years). If only it were that simple. In addition to income, expenses, and savings, you have two other things that you need to consider:
INFLATION is the increase in the cost each year required to maintain your standard-of-living. Inflation whittles away at that 25 years. Inflation raises expenses and can make the shortfall greater, lessening how long your savings will last. You do have some help on the income side since Social Security is adjusted for increases in inflation each year, but generally inflation is a losing battle.
However, on the positive side, inflation is counterbalanced by one other factor:
SAVINGS INVESTMENT RETURNS. Unless you draw out all of your savings when you retire and stuff it into a mattress, you should be earning returns on your savings investments. So, while investment returns giveth, inflation taketh away! The question is how they offset each other.
Notice how complex this becomes. The purpose of a retirement financial calculator is to program these complex relationships among the various factors, take you specific information, and provide you with an assessment of how long you will be financially secure.
WHAT ARE THE ODDS
To invoke a line from a popular sales pitch, “but wait, there’s more.” While income and expenses are relatively predictable, inflation and investment returns can be volatile. So, if you are trying to predict your financial situation for a 20 or 30 year retirement and you are not sure about two key variables then what?
To deal with this some financial calculators use a statistical methodology know as Monte Carlo. I won’t get into a technical discussion of Monte Carlo. However, this technical add-on, which is included in some financial calculators, changes everything. Rather, than asking the question of how long you savings will last, which will vary with inflation and investment returns (two huge unknowns), it changes the question to “what is the probability that your savings will last for various time periods. For example, what’s the probability that they will last for 15 years, for 24 years, etc. Monte Carlo uses the uncertainty created by the volatility in inflation and investment returns to calculate these probabilities.
THE UNKNOWNS ARE WHAT DRIVES YOU CRAZY
Even with the help of Monte Carlo, there is still one huge unknown that is at the crux of the retirement financial question: How long do these resources need to last (i.e. how long will you live). What a typical retirement financial calculator will do is estimate how long your funds will last. You will need to guess whether that will be adequate given your expected lifespan. So, the net of this is use retirement financial calculators for general guidance, but understand that there are limitations to what these tools can provide.
When it comes to calculation of loans and mortgages, there is a special calculator, known as the “Financial Calculator”. This is a simple device that is built purely for the calculation of financial matters, such as interest rate, loan rates, mortgage rates and so on. The calculator has built in formulas and thus makes it easy to calculate financial rates.
Apart from being a physical device, a financial calculator is also a small programmed tool, posted on financial websites, for people to calculate their rates instantly. A typical financial calculator could cost somewhere around $35, and if you happen to be in a finance industry, this is a much needed device.
There are three basic types of financial calculators; Loan calculators, mortgage calculators and credit card calculators. Let’s describe each one of them respectively.
A loan calculator enables users to understand the payable amount of a loan, along with the specified interest rate. The loan calculator works on particular variables and helps you decide what the monthly principal and interest payment would be. There are three types of information used in a loan calculator:
(a) The actual loan amount
(b) Estimated repayment time
(c) Estimated interest rate.
You could either use a physical calculator or simply go online and use an online based loan calculator.
A mortgage branches out to two major types; fixed rate and adjustable rate mortgages. Fixed rate mortgage calculator requires information about:
(a) Amount to be borrowed.
(b) Interest rate
(c) Loan term
Punch in the values for the above information and you will get all the required calculations. The adjustable rate mortgage calculator is complex. You will need the following information:
(a) Amount to be borrowed.
(b) Interest rate
(c) Loan term
(d) Initial length of time before loan adjusts
(e) Interval value, after loan adjusts initially
(f) Estimated rate after each adjustment
The fact remains that a mortgage calculator can just give you an estimate and not an exact figure, as mortgage rates, constantly varies. Be sure to be upgraded about current interest rates on mortgages, and consult industry experts if you want to be sure of the exact amount.
When dealing with credit cards, you need to be aware of the rates that go along with it. Without a firsthand knowledge of where your credit is being spent, and what are the charges along with it, you would be caught in a whirl of debts. A credit calculator could be a vital tool in helping you attain this firsthand knowledge. Not only it will keep you aware of the expense, but also avoid possible debt issues. Information required for credit calculator is:
(a) Current balance
(b) Annual interest rate
Online credit calculators help you further with months left to payoff goal and monthly payment to payoff goal.
Mere calculations done on normal calculators cannot give you a satisfying answer to your loan calculations. Therefore, if you want to understand where your debts are headed, how much money you have to pay/spend, then a financial calculator is the best guide.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.