A Calculator and Critical Caveats

Our members already know that I don’t put a ton of faith in the savings and retirement calculators strewn all over the internet.  They are certainly useful, and have their place in planning.  However, many of their default assumptions (like expected annual returns of 8-10%) are overly optimistic and most lack the ability to give various scenarios based on different rates of inflation.  This means they don’t give you an expected range of your future purchasing power in terms you can relate to—the value of a dollar today.

A realistic calculator is rather complex to use.  Instead, we suggest using a basic calculator that has appropriate default return assumptions.  This can still illustrate how increasing your savings rate—even by just one percent—can grow over time using the power of compounding. Just realize that a dollar many years out is worth significantly less than a dollar today.  Happy Compounding!