Retirement calculator: Easily compute your retirement shortfall in 39 secs

The retirement calculator tool now has a dedicated page

1. Two Controversial Reasons why Age is not just another number in Retirement Planning Calculation

You are not part of the mortality statistics!

From personal finance perspective, traditional retirement planning makes does this:

It utilizes actuarial tables to determine your life expectancy.  For example, if the average life expectancy of a male in your country is 77, then you just use this number.

This practice is ridiculous for 2 reasons:


Actuarial tables are backward looking and don’t account for the “age of biology” as you discussed above.

You can’t be only looking at the rear mirror only while driving, correct?

By the time you’re in expected retirement age, the life expectancy tables can be very different (longer) than when you first plan for your retirement.


Your life is not a statistical or actuarial event – your kick-the-bucket date can’t be planned based on averages. You may live longer than average, and you can’t afford to risk being part of that group without having the money to enjoy it.

You really have no choice but to plan for a very long life (say, until 100), unless personal health or genetics dictates otherwise. The risk is too large to assume.

In summary, the age of biology and increasing longevity alone virtually invalidates most conventional retirement planning calculations. It forces you to plan for a robust retirement plan which throws off perpetual income stream instead of depleting your retirement nest egg.

Persistent inflation that comes with Longevity…

I consider to be the biggest problem faced by current and future retirees:


Just imagine how different your retirement planning and calculation would be if a dollar today would still be worth a dollar when you died, and would continue being worth a dollar for your children and your grandchildren.

The fact is, inflation never sleeps and like it or not, we have to live with inflation’s erosive effects.

Combine the destructive effects of accelerating inflation with your life expectancy issue, and you have a problem that is compounded in retirement planning.

In short, your retirement will not even be remotely close like your parents or grandparents retirement.  The correct strategy for financial planning to make your retirement nest egg lasts as long as possible needs to match this new reality.

It’s a dynamic problem which requires dynamic solution- namely a system to do regular adjustments.

2. Two Critical Things to Focus on when using a Retirement Calculator, and what you Shouldn’t


First…it’s more about execution than calculation in retirement

The most important thing about retirement planning calculation is to pick a goal as soon as possible that’s somewhere in the ballpark. Use any reasonable methodology available so you have a goal to start working toward today.

In other words, it’s more important to start now than to delay the process to so-called, ‘better’ the accuracy.

It’s no rocket science –

…the earlier you start saving for retirement, the easier every financial goal will be to achieve. So just start now and resolve any inaccuracies later.

Here’s another kicker:

All retirement calculators are inherently inaccurate by itself because they are either based on (or require you to make) assumptions* about the future which may (will likely) prove inaccurate.

Which means if you feed it garbage, it will output garbage.

*Assumptions like:

  • Investment rates of return
  • Life expectancy
  • Future inflation
  • Projected retirement withdrawal amounts during retirement years

But without inputting some of these crucial numbers, you can’t even get ballpark figure of your retirement gap.

So you have no choice but to:

  • Guess future investment returns using past averages
  • Estimate how long you are going to live
  • Pick some random series of future inflation numbers

All of these solutions are riddled with potential inaccuracy. It’s an unavoidable problem with conventional retirement planning and all retirement calculators.

This will already overwhelm any inaccuracy you might introduce by doing a separate retirement plan or doing a combined retirement plan.

With that said, if you agree with my beliefs about simplicity with the inherent inaccuracy of conventional retirement planning models, then the answer to your question is straightforward: do what works best for you because there is no perpetually ‘right’ answer.

In other words, I believe this will work for most people:

  • Don’t complicate things unnecessarily.
  • Don’t obsess with accuracy.
  • What’s really important is that you start something, anything instead of getting bogged down by searching for the best solutions.
  • Flexibility gives more value than pretending to have accuracy that is impossible to achieve in reality.’s more about being dynamic than being static in retirement

Review and adjust your retirement plan or roadmap, whatever you call it, as you navigate through retirement.

Here’s the thing:

If your retirement scenario for any given year closely matches the retirement scenario generated  from the output of your retirement calculator, then consider it like hitting a jackpot!

Otherwise, don’t fret.

My advice to you when working with retirement calculators is to not fuss over decimal points or worry about which model is most accurate. Instead, share a nice bottle of wine with your spouse and discuss all the possibilities and dreams you have for retirement. Then model these dreams using a Retirement Scenario Analysis Modelling.

What you’ll discover is that tweaking the assumptions usually makes a dramatic difference in results; whereas the specific retirement calculator chosen makes negligible difference.

For instance, consider how one or a combined of the following questions can have a dramatic impact on your retirement planning numbers…

  • How would your retirement road map be affected by the addition of some part-time monthly income?
  • How does varying the inflation assumptions every year or keeping it constant forever, while keeping all other assumptions static, affect your financial plan?
  • Suppose investments return far less than is commonly assumed? What happens if the return is higher?
  • What happens if you work part-time for 10 years before retiring entirely?
  • How would your retirement plan be affected if you received a big, fat inheritance? Or the inheritance you were expecting turns out to be zilch?
  • What happens if you downsize your residence half way through retirement and move into a condo, thus killing 2 birds with one stone by reaping the a nice profit and lowering home or living expenses at the same time?

Each of these changes will dramatically impact your financial results, and combining them in various ways can be a real eye opener that often changes how you plan your retirement.

When I go through this process with my clients, the result is usually eye-opening and clarifying. They begin to understand at an intuitive level how the retirement planning process works, the inherent limitations involved, and how to work around them.

They realize it’s a blend of art and science because it’s about life planning into an unknowable future: it’s not just numbers.

Doing widely varied scenario analysis will give you a much better feel for your retirement security and the critical factors to financial success than focusing on decimal points and other technical issues.

3. Five Bloody Reasons not to Fully Rely on any Online Retirement Calculator

Retirement calculators are valuable tools when used properly.

But if not used properly, you are betting your financial future on fictitious outputs based on assumptions that have almost no chance of being precise.

Here’s the fact – the output is only as accurate as the assumptions used for input.

One mistaken assumption, and your retirement needs could easily be twice the amount estimated (or worse), leaving you financially exposed when you can least afford it.

What does this mean for you?

Let’s dig deeper into retirement calculators, how they work, their limitations, and proper application so you can see how to use this valuable tool correctly.

Reason#1: The Assumptions Are Critical – Not The Calculator

The critical factor to the accuracy of your retirement estimate isn’t the calculator used, but the assumptions used by the calculator.

For example, let’s consider the investment return assumption. The conventional wisdom is that future investment returns will relate in some way to historical investment return. What happened in the past is what you should expect in the future.

There are variations on this approach:

  • Monte Carlo calculators randomize the returns producing confidence intervals.
  • Other highly respected calculators “backcast” through actual market history.
  • Simpler versions apply average historical returns as if volatility never existed.

Will the results produced by each variation be different?

Absolutely YES!

Essentially, the answer is baked into the cake by the assumptions chosen. It’s just math.

If future investment returns resemble the past, then they’ll all be roughly correct because they’re based on the same assumptions. If future investment returns are significantly different from the past, then they’ll all be wrong regardless of how sophisticated they appear on the surface.

The reason is simple. The assumptions are what get multiplied and compounded, thus determining your result.

Reason#2: You’ll never be able to know how long you will live

Nobody knows when they’ll die.

The state of the art answer in retirement planning is to use actuarial tables, but these are statistical averages which have no relevance to any one person’s date with destiny.

Using actuarial tables to estimate an individual life expectancy is an example of a fundamentally flawed assumption. The process is only accurate for large numbers.

Actuarial tables were never intended as a tool to forecast individual outcomes because that’s impossible to do. You’re no more likely to die on your statistical average date than 10 years before or after.

It’s a nonsensical approach, but it’s also the industry standard.

That’s very dangerous.

Furthermore, by the time you become part of the statistical average, the tables will likely indicate a considerably longer lifespan when compared to today’s estimate. It’s a moving target that’s regularly growing.

The point is today’s average life expectancy tables can’t be used to forecast individual life expectancies in the future. There’s zero scientific validity to the approach, yet it’s industry standard practice.

The truth is you may as well just take a guess on your death date because that’s all anybody else can do. Nobody knows. Nobody ever will… until it’s too late.

Reason #3: You’ll never know how much you actually will spend

It is usually applied using the conventional wisdom that 70-85% of pre retirement income should be sufficient for post-retirement spending, but can you accept this projection?

The logic seems obvious. You’ll no longer be commuting and you won’t have to spend money on professional clothes. More importantly, you won’t be funding your retirement savings plan, so that source of cash outflow will vanish.

However, you’re just as likely to increase lifestyle spending in the early years of your retirement while you have the health and vitality to enjoy an active lifestyle.

Higher cost of living, luxury travel costs, recreation, golf club memberships, and other “necessities” can add up to your annual retirement savings withdrawal amounts. These are expenses you didn’t incur when your days were spent in the office.

On the other hand, spending declines with diminished health in your later years. This also makes sense because as you slow down, your activity level will require less money to support it.

Add in the fact that each individual’s situation is unique, and no generic assumption will be accurate – least of all a simple rule-of-thumb like spending 70% of your pre retirement income.

The best solution is to formulate your own budget based on your life plans and make your best guesstimate. Overestimating is better than underestimating. It won’t be perfect, but there’s no better alternative for answering this required assumption.

For instance, if you plan on extensive travel and recreation, you may require 120% of pre retirement income.

Reason #4: Estimating inflation is akin to shooting in the dark

The conventional wisdom is to assume 3% inflation based on recent history (1980’s to current). The problem is government debt, entitlement programs, bank bailouts, and QE2, 3, and so on have all become substantial problems compared to the recent past, and don’t bode well for future inflation.

Nobody has a crystal ball, but logic indicates mindless extrapolation of the recent past may not be applicable to the future.

It’s impossible because so much will change between now and then, creating unforeseeable circumstances that will determine the result. Yet, retirement calculators require you to guess anyway.

This is incredibly important because small changes in your inflation assumption will produce dramatic changes in your retirement savings plan needs due to the compounding effect.

Depending on other assumptions, a 1% increase in inflation can easily double your retirement savings needs. In other words, one little error can make or break your financial security.

Simply stated, inflation is the single biggest threat to your retirement because it can’t be accurately estimated, you have no control over its occurrence, and the effect is compounded over time, turning small errors into big problems.

Be wary of the conventional 3% assumption because if it proves optimistic, the impact on your financial security in retirement can be dramatic.

Again, overestimating is better than underestimating.

Reason #5: How Much Will My Investments Return?

The conventional wisdom again assumes future returns will be similar to the past. Or that retirees should only put everything into money market fund or any mutual funds.

Can’t be further from the truth.

The problem with this assumption is your retirement security is dependent on what happens during the next 15-20 years – not the last 100.

Long-term analysis can be very risky for retirees because it hides 15 year periods of flat or negative returns. It also doesn’t address the important impact that sequencing of returns has on running out of money.

For example, breaking even for 15 years will devastate a retiree who spends 4% per year to support their current lifestyle. It results in a 60% draw-down in portfolio assets (15*4%) even though the underlying investments actually broke even.

Few retirees can recover from such a devastating outcome, but flat investment periods like this exist in long-term data and must be planned for (just ask anyone who retired in 2000).

4. Two Brutally Honest Factors which Determine the Success of your Retirement Plan

Critical Number #1: Current Savings Growth As A Percent of Spending

The first critically important number when planning retirement with paper assets is the percentage of income saved for retirement versus spent during retirement.

Fact: if you save for retirement aggressively, that would allow you to skip all the calculators by reducing retirement planning to one simple ratio which predicts with scientific precision how long it would take to become financially independent.

The numbers were as follows…

  • 50% retirement savings rate = 17 years
  • 60% retirement savings rate = 14 years
  • 70% retirement savings rate = 10 years
  • 80% retirement savings rate = 7 years

This isn’t some incomprehensible math theory.

The question is, if you want to retire earlier than your peers, you got to look at how much of your resources (time and money) you dedicate to this very goal”.

Remarkably simple… and effective. It just plain works.

Principle: If you want to retire faster, then reduce your spending and/or raise your income in proportion to your income growth. The higher the percentage, the faster and more reliably you’ll reach the goal.

Again, don’t get analysis paralysis get to you.

Try your very best to channel income away from expenditure and into the asset column. Once you have assets, then the next critically important set of numbers becomes relevant.

Critical Number # 2: Return On Investment Adjusted for Inflation Rate Makes or Break your Retirement Nest Egg

The amount of current savings you need to support post retirement lifestyle is a function of your return on investment minus inflation.

This is the HUGE ONE! Nothing else comes close when planning retirement with paper assets.

All other details that arise when people seek to perfect their magic retirement number are undermined by this one ratio – ROI adjusted for inflation.

The power of compounding multiplies small percentages of 3% inflation rate into HUGE differences over long periods of time (20 to 30 years).

This isn’t about turning mole hills into mountains; this is about turning grains of sand into the Himalayas!

When inputting expected lifespan, try putting age 100 unless you have known health issues.

Next, try perfecting your required income in retirement magic number by “tweaking” a few variables like effective tax rate, expected retirement age, etc.

However, make these 2 inputs constant – rates of return on investment and inflation rate.

Notice your retirement magic number changes with each variation, but the changes are fractional.

You will notice that your approximation for how much money you need to retire remain in the same ballpark as your original number.

Now, using the exact same inputs as before, just hike the inflation rate by 2% while simultaneously reducing your return on investment by 2%.

You now should see a big difference.

That’s why you should treat the other variables  are “minor details” and consider these two ratios “critical”. It’s just the way the math works.

In case you need a credible financial advisor to look at your retirement plans, head over to this page. 

Other useful resources:

Safe withdrawal rates during retirement

Cash Flows & Retirement Income over Net Worth or Capital Gains in Retirement

Using Reverse Mortgage to Fund your Retirement using Home Equity

What is Planned Giving in Retirement?

Retire in Malaysia 2020 – 17 Proven(!) Ways to Stretch your Retirement Fund

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