Are you on track for retirement?
This is a question that so many of us ask ourselves often. It can also be a huge source of stress in our lives, as we wonder whether our planning is sufficient in order to retire comfortably at our target age. So, how can we really know if we are on track?
Let’s start by asking a few key questions:
- At what age do you plan to retire?
- What do you project your net worth will be at retirement?
- How much money do you think you will be spending each month after you retire?
Each of these questions can be tough to work through, though facing your retirement situation head-on will increase your chances of long-term readiness and success. After all, planning ahead affords you more time to make changes and allows you to course-correct along the way.
Related: 3 Tools for Tracking Your Net Worth
Of the dozens of free online retirement tools available, MarketWatch is probably my favorite. It’s easy for beginners and has all the bells and whistles to perform multifaceted forecasting. It’s visual, considers tax-optimized accounts, and even has advanced customization options.
It starts simply
MarketWatch makes it very easy to view a basic status report and see where you stand. All you have to do is slide the selectors to your current age, projected retirement age, and annual savings percentage rate. Then, enter your current salary and total assets.
If you are on track, the banner at the top will turn green and say, “Way to go!” As you update entry information, the chart changes in real-time, making it easy to forecast scenarios for various retirement ages and savings rates.
Resource: How Much Should I Save for Retirement?
It accounts for different types of assets
Most retirement calculators aggregate all of your assets and use a single average rate of return. The MarketWatch Planner Calculator, however, allows you to allocate assets to an infinite combination of accounts (e.g., 401k, CD, Brokerage, Roth IRA, Home Equity, etc.).
Each asset type can be nicknamed and has unique entry field:
Take the 401k asset type, for example. You can earmark $100,000 to your 401K while also accounting for an employer match. You can add your spouse’s 401k as well, and note whether you’re currently contributing to each of these accounts (as well as how much).
You can also attribute some of your assets to your home. Personalize the data with your mortgage information (purchase price, interest rate, term, and current equity), and even project a value for its sale just before retirement. You are able to create scenarios as simple or as complex as you wish. This gives you the flexibility to see how your home value can impact your retirement planning, as well as plan for whether a home sale would be the best option for you.
In my opinion, the most unique feature in this section is the Optimize Savings checkbox. This automagically allocates future contributions to each account in the most efficient way possible. The charts help you visualize the savings… and they may even surprise you!
The screenshot below on the left is an example prior to optimization, where much of the portfolio growth is unallocated. The screenshot on the right is optimized and growth is fully allocated. Due to strategic tax savings, there is $11,000 more in the portfolio at the same age.
It is flexible with Social Security
Depending on your age, you may be skeptical that Social Security will even be around when you retire. The MarketWatch Planning Calculator allows you to account for this and see what retirement looks like both with and without these funds.
It gives you the option to completely opt out of including Social Security, so you can plan for the worst case scenario. You can also adjust your start age and customize your benefit amount. An interactive graph illustrates your income and drawdown schedule.
It has comprehensive retirement spending entries
The MarketWatch Planning Calculator will easily help you estimate your yearly spending rate. It does so by taking your current spending rate (your salary minus savings), and adjusting for inflation. It also provides you the option to override this amount, if you anticipate being more modest or lavish in retirement.
Want to Retire Successfully? Start Spending Less Now
Since people tend to spend at different rates throughout their retirement, the tool also allows you to customize phases. The default uses a common framework for allocating expenses. It assumes you are active and will spend aggressively in the early stages of your retirement. As you age, though, you tend spend less. Even further on, your medical expenses are likely to drastically increase your spending.
Depending on your health and lifestyle, you can adjust the sliders to forecast your most and least active years.
It allows you to customize assumptions
The flexibility of the Assumptions tab is among the best in this tool. You are likely to get a more realistic outcome if you customize your estimated life expectancy, tax rates, and inflation rates by category.
For example, most people can expect that their portfolio will see higher returns before retirement, due to risk allocation. And recently, medical expenses have been inflating at a much higher rate than housing or essentials. The tool allows you to test different scenarios and see how the charts in other sections adjust.
How can this tool improve?
The MarketWatch Planning Calculator is missing one critical piece of functionality: the ability to enter Future Spending Events. Many people go into retirement knowing of notable future expenses. These include events such as education for children, weddings, future real estate purchases, and periodic vacations. Being able to include these would provide a more rounded outlook on one’s future portfolio.
Another improvement could be expanding the robustness of the retirement readiness recommendation. Currently, the tools has two states: You can afford to retire or You cannot afford to retire. It would be helpful to have more detailed benchmarks, perhaps by adding a percentage of likelihood for retirement.
My overall impression
Despite the few shortcomings, there are some really neat features to explore with MarketWatch’s retirement planning tool. It will at least give you a great idea of where you stand now, where you could stand, and what you need to change. This will allow you to get on track to a successful retirement.
So, go ahead and give it a try, then report back and let us know what you thought. We’d love to hear whether you’re on the road to a successful, stress-free retirement!