Your Online Retirement Calculator: Helpful or Harmful?

Financial Planning

Jan 9

This is one of my BIGGEST pet peeves with select online retirement calculators (and some financial guru influencer types)..❌

Well.. among other things like not being at all tailored or specific to any detail of your life or planned future, but we’ll put that to the side for a moment.

The “I” Word

Often, these retirement calculators and online finance gurus either don’t seem to account for inflation or the assumptions being used aren’t conservative enough.

What we want to consider is "net" (after inflation) investment returns.

Here's what I commonly see:

"If you invest $X/mo., and the market typically does Y%, you should have $Z by retirement."

Real World Example:

Let’s take a look at Jimmy:

50 years old
$750,000 in investments
Contributing $2,000 a month
Aggressive investor that expects to mirror the S&P 500's long-term return of 10% (any is swayed by the comment under the annual return field in the below calculator).

The calculator spits out a whopping $4.2M!

Assuming all of the above is true and happens as stated, yes, the dollars in your Schwab, Fidelity or Vanguard account will show $4.2M but it definitely won't feel like it. We're ignoring inflation entirely..

Long-term inflation runs at roughly 3%, so if we turn our 10% return (already aggressive) into a net return (after inflation.. 1.10/1.03) we get a real return of 6.8%.

Rerun the numbers and that $4.2M of future dollars, feels like just ~$2.7M in today's dollars.

Still a lot of money and many wouldn't balk at that, however, that's 36% less than what your calculator would've led you to believe initially.

Again, this is one of many problems with these online calculators..

They are generally helpful but specifically useless as they don't account for any real variables about your life today or what’s important to you in the future. They force you to focus on a specific but often times arbitrary number.

Bottom line: Don't omit or underestimate inflation from your retirement projections or you're setting yourself up for trouble!