Retirement calculators can give different answers. Learn what to check in their assumptions about income, inflation, investment returns, fees and spending before relying on a result.
Retirement calculators can give different answers because they use different assumptions, include different sources of income or measure different things. Entering the same age and super balance does not necessarily make two results directly comparable.
That can be unsettling when you are trying to decide whether retirement is within reach. One result may leave you feeling comfortable, while another suggests you need to keep working for longer.
Before deciding which number to rely on, take a closer look at how each tool reached its answer. The differences can help you identify the questions your retirement plan needs to address.
Check what the result is measuring
A projected super balance, an annual income estimate and an estimate of how long savings will last answer different questions. Start with the label above the result and the explanation underneath it.
For example, Moneysmart’s superannuation calculator estimates your balance at retirement. Its account-based pension calculator looks at income drawn from that account and how long it may last; it excludes the Age Pension and income from other investments.
Other tools have a broader scope. The retirement income calculator provided for Virgin Money Super includes an estimate of Age Pension eligibility and allows partner information. These are differences in what the tools model, rather than evidence that one headline result is more suitable for you.
Make the household details consistent
When comparing results, use the same starting balances, income, contributions and planned retirement dates wherever the tools allow. Check whether the result is for you alone or for your household, and whether your partner’s age and retirement date have been entered.
Also check how long the projection runs. A model intended to fund spending until age 85 is answering a different question from one intended to fund the same spending until age 95. Neither endpoint tells you how long you will actually live.
If Age Pension income is included, check the assumptions about your home ownership, other assets and income. Rest’s calculator guide, for example, identifies those details as inputs for its Age Pension estimate. A calculator’s estimate does not establish your entitlement.
Understand what today’s dollars means
Inflation can make future amounts look larger without giving you more spending power. Results shown in today’s dollars have been adjusted to make future amounts easier to relate to current living costs.
As a simple illustration, spending of $60,000 today would cost about $98,300 in 20 years if prices rose by 2.5% every year. Those amounts would buy approximately the same things under that assumption. This is an illustration of inflation, not a forecast or a suggested retirement budget.
Check the calculation method as well as the label. Some tools adjust projections before retirement for growth in community wages or living standards, then use price inflation during retirement. Comparing a figure in today’s dollars with an unadjusted future amount can give a misleading impression.
Look beyond the default investment return
A higher assumed return can produce a larger projected balance or make savings appear to last longer. Look for the assumed rate, whether it changes after retirement, and whether tax and investment fees have already been deducted.
Check administration fees, insurance premiums and any advice fees separately. The default costs may differ from what you pay. Moneysmart’s superannuation calculator, for example, lets users adjust several of these settings.
Also look at how the tool handles changing markets. Moneysmart’s account-based pension calculator uses steady assumptions and does not model returns varying from year to year. Actual returns can be negative in some years. A smooth projection therefore needs to be read with those limitations in mind.
Check that the spending reflects your life
A suggested income target may be based on a benchmark or a percentage of salary. Compare it with a budget that includes your housing costs, health expenses and the things you want retirement to make possible.
Look for how the tool handles larger withdrawals, such as paying off a mortgage, replacing a car or helping an adult child. If it cannot include an expense at the time you expect to incur it, note that limitation alongside the result. An annual average can hide the need for a substantial amount of money in a particular year.
Explore what could change
Save your starting assumptions, then explore a few alternatives. What happens if you retire earlier, spend more than expected or receive lower investment returns? Change one setting at a time initially so you can see what caused the result to move.
Keep the assumptions plausible and record what you changed. Several unfavourable changes could occur together, so separate examples do not cover every possibility. A result that depends on everything going as planned deserves a closer discussion before you commit to a retirement date.
A checklist before relying on a result
- What does the result measure, and is it for one person or a couple?
- Which income sources, assets and expenses are included?
- What retirement dates and final projection age are assumed?
- How are inflation, returns, tax and fees treated?
- Are the assumptions and relevant rules current, and what cannot be modelled?
Keep the calculator link, the date you used it and a copy of your inputs with the result. If two estimates still differ, those details make it much easier to work through why.
At Wealth Optix, we help connect the numbers with your circumstances and the decisions ahead. If a calculator has raised questions about your retirement, you can request a conversation with Marissa. Bring the results and assumptions with you so there is something specific to discuss.
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General information
This article provides general information only and does not take into account your personal objectives, financial situation or needs. Consider your circumstances and seek appropriate financial advice before acting. Calculator results are estimates based on assumptions and are not guaranteed. The inflation example is hypothetical. References to calculators illustrate their features and are not product recommendations. The Wealth Optix Retirement Planning Check provides general information and does not determine whether you can afford to retire.
Wealth Optix Pty Ltd is a Corporate Authorised Representative (No. 001321543) and Marissa de Saint Quentin is an Authorised Representative (No. 001003145) of Spark Advisors Australia Pty Ltd ABN 34 122 486 935 AFSL 380552.