Today I thought I would take a look at the Vanguard Retirement Income Calculator. This online calculator attempts to calculate the monthly retirement income you are likely to have at retirement.
Retirement Income Calculators take a different approach to the Otar Retirement Calculator. They look purely at estimated monthly income and assume you will need a percentage of your pre-retirement income to live on.
Things I like about it
- Results are shown graphically as you change the slide bars.
- The results are shown in today’s dollars adjusted for inflation.
- It give you a good feel for how your
personal contributions, Social Security and any Pension Benefits all add up to a monthly income. - It is very easy to try different “What If’s” to see different results.
- They explain the assumptions that they are making for the calculation.
- They work it in today’s dollars so you can relate to it.
- They give a disclaimer advising you that their calculator is not to be taken as investment advice.
- It uses the 4% Rule which is a good rule of thumb for withdrawal rates.
- It graphically shows how increasing your savings can have a dramatic affect on the Monthly Retirement Income.
Things I don’t like about it
- They assume an average inflation rate of 3% for the calculations even if you are 30 years old and have 32 years to retirement at 62.
- This inflation rate is also assumed for the pension component.
- It assumes Long Term Average returns for different types of investors.
- It assumes you will need 85% of your pre-retirement income to live on in retirement.
- It may prompt you to increase your risk from conservative to aggressive to try and get the monthly income figure to meet their estimate of what you will need.
Summary
I think this retirement income calculator is good for you to get a “feel” for the monthly income you might need and have in retirement. It is also good for you to see how the amount you save can dramatically affect your monthly retirement income.
It is based on average inflation, average returns and 85% of your pre-retirement income in retirement. They do have a disclaimer though. But please note the use of averages and do not rely on calculators like these to plan your retirement.
