Undoubtedly, the retirement calculators are easy to use. People only need to input few information based on their future assumptions and instantly the calculators provide them the numbers informing how much they need to save for retirements. Even those results appear mathematically precise and scientific too.
But the problem arises while inputting the wrong value for some impossible-to-assume incidents as the numbers then come out can be dangerously wrong and these can jeopardizing their retirement security.
Of course, retirement calculators are valuable tools when they are properly used. But when people are betting on their financial future based on some fictitious outputs, there are lots of chances for misleading towards wrong territory as the outputs can be accurate only when the assumptions of the input will be correct. One mistake of assumption can lead the retirement life in financial crisis.
Making Assumptions Beforehand Is Always Critical
A great number of inputs in the retirement calculators are based on assumptions about future. A single mistake in the inputs can throw off the results, in certain cases in the wild fashion. When you need to input numbers like investment returns, inflation, tax rates during retirement, you need to be speculative at your best. A single mistake in these numbers can be multiplicative that can raise the estimate up for every year and thus the value of your accumulation can make the difference of hundreds of thousands of dollars over all.
Here are the reasons why you should not be blindfolded about retirement calculators. Let’s focus on these examples-
Assumption on the tax rate in retirement
If you ask few tax professionals about the nest year’s tax brackets, it is evitable that you will get different answers and the best possible answer is ‘who knows?’ actually, it is not possible to know what future holds for taxes, not even for next year. Then how can you assume that after 20 years what will be the tax rate? Since tax laws and rates are bound to change frequently, it will be a futile effort to calculate your tax rate for your retirement based on today’s tax law.
Difficulty in estimating the inflation
Just like the estimation of taxes, it is also quite shaky to predict on inflation. Most of the professional financial planner attempt to simmer down the inflation through some easy-to-use number, usually ranging between 2.5% to 3.5% over time. But the fact is that in the real life scenario, such numbers are absolutely nonsense. Using those flat, far-reaching estimation of