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The Perils of Retirement Calculators

Planning for retirement is one of the hardest money issues people face, as the uncertainties of dealing with a goal that's years or even decades away are hard to navigate. In this edition of our Motley Fool Conversations series, Fool personal finance expert Dayana Yochim and retirement-planning analyst Dan Caplinger discuss retirement calculators and the ways that many people use them to try to find some answers to their questions of how much to save and how to invest.

Dayana notes how retirement calculators allow you to run any number of scenarios to help you plan your retirement. But as Dan points out, the to-the-penny answers that retirement calculators produce don't accurately reflect the bumpiness of real-life investing results, which inevitably include bumps and dips along the way.

The key to using retirement calculators well is to maintain the flexibility to deal with changing circumstances. Dan and Dayana bring up a number of areas where staying flexible can help, including how much money you spend from year to year, when you plan to retire, and how you invest. Taking advantage of opportunities to phase into retirement through part-time arrangements can give you extra income to help you bridge the gap to get more financial security.

Finally, Dayana and Dan discuss various investing ideas. Although many retirees have traditionally turned to bonds, stocks of companies that enjoy stable customer demand and pay healthy dividends are a good choice. Yet to provide long-term growth for retirees who expect to live 20 to 30 years beyond their retirement date, growth stocks can be appropriate even if they don't pay dividends. Dan names some stocks in both categories and concludes that the right balance will let you keep your bases covered. is a good example of a growth stock, and even though it pays no dividend, it has plenty of future potential for further gains. The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2013, at 1:06 PM, baxelis wrote:

    A good discussion of retirement calculators should include ones that use Monte Carlo simulation to model the risk of meeting the retirement goals. While all retirement planning involves assumptions and projections, there are better tools available than just calculating 4%

  • Report this Comment On April 10, 2013, at 4:52 PM, boydlemon wrote:

    This is all good advice. Obviously, financial planning is key to a fulfilling retirement. But I want to call to the attention of baby boomers and anyone planning retirement or recently retired that emotional planning is important too. Going from a full time job to no job may seem ideal, but it is an enormous and difficult adjustment. Too many retired people end up feeling useless, with no purpose. Many suffer from episodic depression as a result, making what could be the best time of their lives, the worst time. Prepare yourself by finding a passion to pursue during retirement.

    Boyd Lemon-Author of "Retirement: A Memoir and Guide" (December 1, 2012); Eat, Walk, Write: An American Senior’s Year of Adventure in Paris and Tuscany (2011); and 5 other books. Information, reviews and excerpts:

  • Report this Comment On April 10, 2013, at 9:46 PM, PACJr wrote:

    I've been in the retirement industry for 25 years. These calculators are a great starting point and good for a periodic checkup but most use current dollars and with no inflation factoring. Individuals relying on only these types of calculators will be initially excited but eventually disappointed when their goal is reached but they learn that the true amount needed is much more than their actual accumulated savings. My suggestion: Seek a fee-based financial planner at age 30, 40, 50, then every five years after age 50 until retirement. And stay the course with the professional's advice.

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