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Sizing up online retirement calculators

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Online financial calculators can be useful tools to help clients plan for retirement, experts say.

Such tools can be a great way to start the dialogue about retirement planning, says Robert Pagliarini, a planner and author of “The Sudden Wealth Solution: 12 Principles to Transform Sudden Wealth into Lasting Wealth” (Harbinger Press, 2015).

“The best tools are those that allow you to explore and provide you with ideas,” says Pagliarini, a CFP who is also president of Pacifica Wealth Advisors in Mission Viejo, Calif. “Ideally, they would then help the client have a more informed discussion when they talk to their financial adviser.”

However, many of the tools offered online ask for relatively few inputs, which should be a warning sign that the results may be less accurate than those that require more comprehensive information, says Claudia Mott, a CFP and the principal of Epona Financial Solutions in Basking Ridge, N.J.

At a minimum, the calculator should ask about different sources of income, expected living expenses during retirement and all forms of assets that will be available as a means of support, she says.

This can include proceeds from the sale of a home, inheritances and retirement accounts. Annual savings that will occur until retirement should also be a factor that allows the value of assets to grow until retirement begins.

“Information about the health of the individuals and family longevity must also be taken into consideration, as the forecast should reflect the best guess on how long someone may live,” Mott says.

Items that are often forgotten that may have a huge impact on future retirement goals are medical expenses and major purchases such as vehicles, says Anjali Jariwala, founder of FIT Advisors in Chicago.

“Medical expenses grow much higher than inflation, and I usually incorporate an amount each year once someone is in retirement,” she says.

“Another item is vehicle purchases. Cars do not last forever, so it is important to factor in the cost of a new vehicle every five to seven years,” Jariwala says.

Catherine Seeber, a partner at Wescott Financial Advisory Group in Philadelphia, says that a good questionnaire with realistic assumptions built in can be useful but only as a “trend line” to see if there are any red flags and/or any modifications that need to be made to income or spending patterns.

However, retirement calculators can’t replace advisers, who are able to monitor and adapt their client's financial plans and who are able to respond to unforeseen events and changing circumstances.

“Furthermore, technology cannot impose discipline on someone who is not disciplined. It can only provide a framework for those who are motivated enough to follow it,” Seeber says.

This story is part of a 30-30 series on tools and strategies for retirement

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