Anyone who has taken the time to fill out the input required for more than one retirement calculator will know the output results vary dramatically. Recent studies by financial and academic institutions, in fact, show that the numbers you get could vary by 60 percent or more!Take charge of your own retirement

No matter how much careful skepticism you apply, there is no way you can use those calculators to help you reliably plan for retirement. As I wrote in a blog post earlier this year, such calculators fail to account for several factors while determining the “magic number” you seek. In fact, calculators don’t even give you a reliable range of numbers to choose from.

The problem with calculators

Not only do calculators each use different algorithms and assumptions, they also often leave important factors, like taxes or late-in-retirement expenses, out of the equation. Also, if one calculator assumes your return on investment will be 5%, and another predicts 7%, the results will be impossible to compare.

Ideally, retirement calculators would all use the same variables and measure their effects in the same way so that you could compare the results.

The use of calculators cuts across 401(k) providers, insurance companies, financial advisors and other consultants – and no one uses a standardized approach. Without regulations that mandate a consistent methodology, there should be, at a minimum, full disclosure about the underlying assumptions of each calculator, so that when you use one, you can be confident in the results.

We should not be in an era of “dueling calculators.” Let companies compete on implementation and execution. Then you can make a choice about what kind of implementation approach you want to take with your own retirement savings.

How to reduce volatility

If calculators were reliable, you could devise a plan, perhaps with the help of an advisor, and then test the results.

However, you can develop your own guidelines that will help you decide what level of savings will produce the income you need in retirement. Among the important factors you should consider:

  • Taxes. Will your income, and thus your tax rate, be lower in retirement? What savings sources do you tap for income?
  • Personal Situation: Are you planning for income just for you or for survivors or beneficiaries as well?
  • Risk. The more you have invested in stocks, the more risk you assume. To narrow the range of risk, add income annuities to the mix. They will provide a level of guaranteed income that you can count on every year.
  • Home equity. You can tap your home equity in various ways: by downsizing, taking a traditional home equity loan, or applying for a reverse mortgage.

When you know the questions to ask, you will be much closer to accurately predicting your income potential, whether you devise a retirement plan on your own or work with an advisor. At that point, you can shop around for products that suit your needs based on your risk tolerance and then compare the predicted results of one product to another.

Your goal is to put together a portfolio that builds on Social Security payments and other pension-like income so that more volatile income sources enhance your lifestyle, but never threaten to destroy your plans when the market dives.

I answer your questions about retirement variables, objectives and risk. Write to me at Ask Jerry.