Magic calculator instructions1/7/2023 ![]() experts who've made a career studying inflation can't even project it accurately for just one year into the future. Forecasting this number accurately is impossible. The future is not the past, and the only inflation rate that matters to your retirement forecast is in the unknowable future – not the past. The problem with this approach is obvious. For example, the historical average inflation rate in the United States has approximated 3% so most experts recommend using 3% for your future inflation projection. The implication is the past is indicative of the future. The industry standard approach for dealing with these unknowable assumptions is to apply historical average estimates. Related: How Your Financial Advisor is Taking 75% of Your Retirement Income (or More!) Video, PDF download, or Audio. It cannot be predicted with sufficient reliability to bet your financial future on. Unless you have a crystal ball or can read goat entrails, then the future is unknowable. The fundamental problem is many of these required assumptions are tantamount to forecasting the future, which is impossible. No exceptions allowed because the math requires these inputs. These are the required assumptions, and every calculator must have these inputs. ![]() Assumptions Required To Estimate How Much Money You Need To RetireĪll retirement calculators require the same basic inputs to work their magic – your retirement age, life expectancy, inflation, investment return, portfolio size, and expected retirement expenses. If your input assumption is wrong then your retirement estimate is wrong as well because it's merely a mathematical projection of the chosen assumptions – nothing more.ĭon't be deluded by the apparent mathematical precision of a retirement calculator into believing the estimate provided is similarly accurate. In fact, your estimate for how much money you need to retire is only as accurate as the assumptions used to make that estimate. All retirement calculations are just mathematical projections of input assumptions to form hypothetical estimates. ![]() You've probably seen the advertisements from brokerage firms asking, “How much is your number?”, with people walking around with red numbers stamped on their forehead. The incorrect way to use a retirement calculator is to believe in the “magic number myth”. Without a retirement calculator the math would be too complicated for all but the most dedicated spreadsheet junkies. You can put real numbers behind your future plans to decide both how much money you need to retire and if you are saving enough to reach the goal. In other words, retirement calculators make the math of long-term financial modelling easy. You can include projected income sources, growth of retirement savings, as well as model the sale of substantial assets such as a business or real estate to see how it affects savings growth and income over time. The best retirement calculators allow you to model your financial plan by varying input assumptions and then projecting those assumptions into the future. Retirement Calculator Tips For Best ResultsĪ retirement calculator is a valuable tool when used properly, but can dangerously mislead you when used improperly. I hope it helps you plan a secure retirement. It’s called the Ultimate Retirement Calculator because it’s the easiest, fastest, most accurate way to model every retirement planning scenario you can imagine.
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