Do Most Retirement Calculators Factor in What You'll Leave Behind?
You typically use a retirement calculator to determine how much you need to save to meet your retirement income needs or how long your money will last after you stop working. In most cases, how much is left for your heirs is a side-product of the calculator's results. If you want to plan on leaving a certain inheritance, look for a program that specifically lets you include that criteria.
Range of Planning Tools
Determining how much money you need for retirement and how long that money will last is not an exact science. As a result, many types of retirement planning calculators have been developed, with each putting more or less emphasis on the different factors that affect income in retirement. If you're leaving a certain amount of money as an estate when you are gone, you should look for a retirement income calculator that includes a desired estate value among the factors you can input.
Yearly Results Output
Any retirement planning calculator that offers output of year-by-year results can provide information on how much would be left to your heirs if you died at a specified age. For example, a retirement calculator may show that you run out of money at age 97 but that at age 85, $400,000 will remain in your retirement savings accounts. Although in this case the retirement calculator shows how long your retirement savings will last, the results will show how much of your money would be left if you died during any year before you are expected to run out of money.
The results you get out of a retirement calculator depend on what is entered. Several pieces of information you use to estimate your results are just estimates, and the actual results may be much different. A retirement calculator needs an estimate for the returns earned on the savings investments and another estimate for the average rate of inflation decades into the future. Planning an estate using a retirement calculator may result in much different results when your heirs actually receive the money.
Monte Carlo Simulators
If you want to dig deep into the potential outcomes of a retirement plan, use a calculator that does what is called a Monte Carlo simulation. This type of calculator determines retirement income results using a range of investment returns and inflation values. The results give you a worst case, best case and expected outcome for your financials in retirement. This type of calculator would provide the probability that money is left for your heirs.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.