By Dan Serra

McClatchy Newspapers

The Bergen Record 2/2010

 

When it comes to forecasting your financial future, there are no shortages of online calculators and software that can spit out projections on whether you’ll have enough money in retirement. While they are good tools for estimates, too many moving parts in life make them less effective. Combining them with personal desires and changing economies can paint a more accurate picture for retirement.

 

For example, do you really know how much Social Security you will be receiving each month? The benefit is calculated using your lifetime earnings, and few of us know how much we will earn over our lifetime. The other unknown is at what age Social Security will be collected. The further it is delayed, the higher the benefit.

 

Related to that is using Social Security benefits at all because of the concern over the viability of the program to pay benefits in the future. Software or tools should therefore provide a calculation not using Social Security or just the minimum current amount. What does end up coming from Social Security will be treated as a bonus.

 

Want to use Social Security benefits in your estimates? Find your estimated benefit at www.ssa.gov/estimator.              

 

Another unknown is how long you will live. If the tool is forecasting based on average life expectancy or you under estimate your longevity, it increases the odds for being inaccurate. Workers today can expect to live to 100 and should base their projection on making a portfolio last until then. And how long it lasts depends on expenses, another unknown, but it can be more accurate with thought given to desires in retirement.

 

Calculators, and people, may also project housing values increasing at a steady rate.  As we have seen in the past few years, that is highly unlikely, and it is not known if we will ever see increases that we’ve seen in the past. For that reason, not including housing growth can provide a more accurate portfolio projection.

 

Finally, the largest unknown is whether an investment portfolio would grow or decrease in retirement. Recent retirees who thought they had enough were suddenly in trouble when the market tumbled last year. Calculating a portfolio with negative or flat returns is also a necessity in forecasting.

 

A recent analysis of software by the Society of Actuaries found many of these “what ifs” lacking or not effectively being addressed. Because of that, you must be cognizant of developing your own scenarios and can benefit from a financial planner who can help you analyze retirement desires and issues to come to more accurate conclusions.  (End - Bergen Record Article)

 

Blueprint, a comprehensive financial planning service by The Haggerty Group can help you navigate these difficult questions and much more. Please contact Peter at 201-447-5675 or peter@thehaggertygroup.com to make an appointment and start planning your financial future.