Running the Numbers

Nov 2, 2022
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Over the many years that the Employee Benefit Research Institute (EBRI) has been conducting its Retirement Confidence Survey, one metric has remained stubbornly low: the number of current workers who have estimated how much they are likely to need for a comfortable retirement. Since the EBRI began its survey in 1996, there has never been a time when more than half of respondents have run the numbers. In the latest survey, 46% said they have done so.

Our hope is that for SMI members who have been part of this community for at least a year, everyone would have done such planning. After all, it’s vitally important and it’s never been easier.

Why it matters

Whether setting out on a summer vacation or trying to lose weight, it helps to know where you’re trying to go.

With retirement planning, only by knowing your ultimate goal can you break it down to how much you should contribute to your 401(k) or IRA each month. And knowing that number can provide the motivation to find the money, using a monthly cash flow plan to prioritize this goal. (Read If You Hate to Budget, You’re Not Doing it Right.)

It’s true that there are a lot of moving parts to the retirement planning process, a lot that can change between now and then. Your circumstances might change and your hopes and dreams might change. But that doesn’t mean it’s pointless to plan. It means that this particular plan should be updated regularly. Especially as we get to be about 55 or 60 years old, we would be wise to revisit our retirement plan each year.

How it’s become easier

While the ultimate number might be a moving target, the good news is that tools to estimate that number are readily available. Today, there are several free online retirement planning calculators that can at least serve as a decent starting point.

Fidelity’s Retirement Score calculator requires answers to just six questions to determine how on-target you are. You can then adjust some of the calculator’s assumptions, such as your intended retirement age or, ominously enough, your “planning age” (how long you think you’ll live).

EBRI’s recently “re-envisioned” Ballpark Estimate calculator asks for several of the same inputs as Fidelity’s calculator, along with a few Fidelity does not ask about, including any additional income you expect to receive in retirement, how much debt you are likely to bring into retirement, a post-retirement inflation rate, and more.

Both calculators make some assumptions about Social Security, which you should take into account by reading about each one’s methodology.

Some other options can be found at this link.

A planning power tool

One of the major limitations of many of the free online calculators is that they are only about one person’s situation; if you’re married, they do not allow you to enter information about your spouse.

For that and many other important facets of retirement planning, SMI premium members have access to a planning tool widely considered the gold standard of such tools among financial advisors: MoneyGuide. A one-time fee of just $50 gives you access for as long as you maintain your premium membership.

With MoneyGuide, you can add many more details about your current situation, your goals, and your concerns. After gauging your “probability of success,” you can run various what-if scenarios, modeling the impact of everything from dying young to living an unexpectedly long life.

For all premium members, we highly recommend availing yourself of MoneyGuide. While retirement planning is an imprecise science, MoneyGuide is a great tool for taking into account all of the many moving parts in the process.

Written by

Matt Bell

Matt Bell

Matt Bell is Sound Mind Investing's Managing Editor. He is the author of five biblical money management books and the teacher or co-teacher on three video-based small group resources. His latest book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management, was published by Focus on the Family in 2023. Matt has spoken at churches, universities, and conferences throughout the country and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

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