Want a Happy Retirement? Don't Just Guess About What You'll Need

retirement planning - too important to guess at.
Recent research from the Employee Benefit Research Institute confirms what you probably already know: Retirement planning isn't something you can successfully leave to guesswork.

In its research, EBRI found that people who either used online retirement calculators or who worked with financial advisers were far more prepared to have a successful retirement than those who didn't. On the flip side, those who relied primarily on guessing at how much they'd need to cover their expenses wound up far worse prepared for their retirement than the typical person.

At Least Someone Has Contemplated Your Retirement

Intuitively, that makes a ton of sense. Your paychecks stop in retirement, but most of your expenses won't. Indeed, some of your costs -- most likely health insurance -- may well go up once you leave your employer. If you don't have a good handle on what all of your costs will be, you won't be able to adequately prepare for them.

Working with a professional or an online calculator helps in large part because an expert somewhere along the line has already thought about just about everything that goes into a typical retirement.

Those expenses can be estimated, tallied, and totaled. And with those cost estimates in hand, it becomes a straightforward math exercise to figure out how much someone needs to have saved.

Of course, you'll have to add in some fudge factors, because you can't know how long your retirement will last, and because any future expense estimate is just that -- an estimate. But still, once you have a solid framework for your expenses, the bucket of money you'll need to cover them becomes far clearer.

And speaking of that bucket of money, once you know how big it has to be, figuring out how to accumulate it will largely be driven by estimates on your savings levels, rates of return, and time. Once again, a calculator -- whether run by you yourself or by a financial adviser you hire -- makes it fairly straightforward to figure out what you need to do to get there. The rest is largely a matter of regular review and course corrections, aided, of course, by either your or your planner's retirement calculator.

Which Is Better: Working Alone or with an Adviser?

There's good news for the retirement planning do-it-yourselfers out there. According to the EBRI's data, those who took charge of their own retirement and planned for it on their own with the help of online calculators were generally better prepared than those who used a professional adviser. That held true across all family statuses and income ranges that the EBRI considered.

Still, just like many people need to hire a personal trainer for the encouragement to exercise, other people may need to hire a financial adviser for the encouragement to invest for their retirement. Just beware that every dollar you spend on an adviser -- either directly or indirectly through money the adviser gets paid for selling you products -- is a dollar you can't invest. That dollar also won't compound on your behalf, making it that much tougher for you to ultimately reach your retirement goal.

Nevertheless, you're still far better off putting something away for your future than not investing at all, even if your overall returns aren't the greatest. If it takes prodding from a financial adviser to get you moving on a reasonable plan, that's still leagues ahead of where you'd likely get from mere guessing.

Stop Guessing, Start Doing

If you've never used an online retirement calculator before, now is the absolute best time to take a few out for a test drive. Since time can be the most powerful weapon in your retirement arsenal, the sooner you get moving, the better off you'll be.

The three links below are to different free calculators, any of which will help get you in the ballpark of where you need to be to have a successful plan:
  • AARP -- Very simple and straightforward, with inputs and results graph on the same page.
  • CNN Money -- Good balance between entry effort and results. Big benefit: It shows you the odds of your plan succeeding, rather than just assuming you'll hit your targets.
  • E$P Planner -- Very comprehensive, but takes a long time and requires a lot of inputs and reading.
  • DailyFinance retirement calculators -- This suite of calculators helps you home in on retirement savings specifics, such as which savings account should be tapped first in retirement to the effects of tax law changes and inflation.

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Another nonsensical article. It's all guessing... and the biggest is the guess whether or not you'll live llong enough to retire. I remember friends of my parents who saved and planned for retirement. They never had any fun... never spent on a luxury. They were Depression era and WW2 survivors.... They didn't even get a telephone until 1962 because it was a luxury. They had no children because children cost too much. They needed to save, save, save for their old age. They'd seen their parents and grandparents experience rough old ages. Guess what. The husband was killed at age 61 when a car went out of control and hit the bus bench he was sitting on. The following year, the wife got an extremely aggressive form of cancer and was gone in 6 mos. They left behind them considerable savings... but no will... and no heirs. They'd never owned a car, a home, never taken a vacation. Their big splurge each year had been going to dinner at a restaurant on their birthdays. They planned... but man proposes, God disposes.

May 13 2013 at 12:58 PM Report abuse rate up rate down Reply

people can plan all they want......They cannot plan their retirement being taken away by greedy companies, or their pensions being taxed to death by greedy lawmakers. Or financial institutions going bankrupt and opening under a new name days later without having to pay what they promised. Or having yuor financial planner stripping your account by frivolous charges.

May 13 2013 at 10:29 AM Report abuse +2 rate up rate down Reply
Henry ptnm

I'm retired and when I filed for retirement, it took me over 3 years to get everything in line and get everything in plan with the pension, Social Security and roll over the annuity into the IRA plan. I have to get a spending plan in place and what I would need on a monthly basis. This was done after I retired. What is written by Chuck Saletta is good but there is more to it. Planning on retirement is one thing. Once you are in it is another.

May 13 2013 at 7:22 AM Report abuse -1 rate up rate down Reply

My personal experience has been that our qualified financial planner saved us thousands of dollars right out of the gate by getting our investments properly balanced prior to the bloodbath the financial markets experienced in the Great Recession. In addition, there were so many aspects of what we needed to think about and did not have a clue about, that I have come to the opinion that anyone who tries to navigate this by themselves is in the same boat as someone who decides to diagnose and treat their own illnesses using only on-line resources - guaranteed to have a fool for a doctor and a damned fool for a patient. In neither financial management nor health management do I advocate a "let someone else" make the calls - in both, I take a role of active participation in the decisions and the outcomes, but in both, with the aid of a highly trained professional.

May 13 2013 at 6:22 AM Report abuse +1 rate up rate down Reply

The "Quality" of retirement should never be measured simply by income. Sitting at home like a plant is poor quality regardless of your income. Much more attention should be given to what a retiree wants to do after 65. http://www.alexkrzyston.blogspot.com/2013/02/alex-krzyston-quotes-on-life.html

May 12 2013 at 4:16 PM Report abuse -1 rate up rate down Reply

Except for the completely math challenged, this process is portrayed as being much more complex than it really is. Leaving the math challenged behind, they do need to go see someone, for the rest of us, it is just making a current and projected budget. If you are familiar with Excel, much the best, but a piece of paper, a pencil and a calculator still work fine.

Everyone has a budget whether they know it or not. Budget is a foggy word. It implies one would meet or live within it. Ultimately, even a non functional budget is just a track on cash inbound or outbound, balanced or not. Create yours preferably on an annual basis so it will not be skewed as much by larger cash in or cash out--bonus or a new roof.

Then climb in the time machine for a forward budget. The short answer to whether you have enough for retirement is simply---did you save for it?

May 10 2013 at 2:44 PM Report abuse +1 rate up rate down Reply
1 reply to donut999's comment

donut ? if "everyone" had a budget,this country WOULD NOT be in the mess IT IS.

May 11 2013 at 11:29 PM Report abuse rate up rate down Reply