Millions of Americans approaching retirement plug their savings into free online calculators and trust the output as financial truth. Those projections often deliver a single number or a reassuring green checkmark, creating a dangerous sense of certainty about the future.
Clark Howard, consumer finance expert and host of “The Clark Howard Podcast,” has raised serious questions about the reliability of these tools in a March 2023 Clark.com analysis that continues to circulate among retirement planners.
Howard’s warning suggests that the calculators most people depend on for retirement planning deserve far more skepticism than they typically receive.
Where retirement calculators fall short on default assumptions
Most online retirement calculators rely on similar core assumptions and formulas, Howard wrote in a Clark.com analysis. The differences usually stem from the unique adjustments each company makes, such as how aggressively it estimates investment returns, inflation, or longevity.
A listener named Gerard from North Carolina specifically asked Howard about Fidelity’s retirement calculator, writing that he suspected it would always say “not enough, invest more with us!”
Howard wrote that Gerard had a point: When he ran his own Google search for a retirement calculator, one of the top results, which Howard did not identify by brand, defaulted to a life expectancy of 95 and a 6% rate of return.
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Those default settings can skew results, either inflating or understating how much money someone will need for retirement. “I’d say if you try three or four of these, you’ll have enough information to have a real sense of where you need to go with your money by blending the results they have,” Howard said on the Clark Howard Podcast.
No calculator can accurately predict future market returns, inflation, health care costs, or how long someone will live, Clark.com noted in “Can You Trust Retirement Calculators?”
But that does not mean the tools are useless. A good retirement calculator can help answer one important question: Am I generally headed in the right direction?
Why a market decline near retirement poses risks to savings
Howard warned that the five years leading up to retirement represent a particularly dangerous window because a severe market decline in that period can sharply reduce a portfolio’s value just as withdrawals begin.
[These retirement calculators] take into account the ‘what ifs’ and probabilities that at some point on your ride, and especially if it’s close to when you’re retiring, the risk that your money will be devastated by a decline or a long-standing bear market.
That type of timing-related loss can mean significantly less money available in a retiree’s later years than projections originally suggested.
Howard described it as a meaningful long-term risk that calculators attempt to model through probabilities but cannot precisely forecast for individuals.
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Clark Howard: blend multiple calculators for realistic retirement picture
Howard’s guidance is to run projections through three or four separate calculators and then blend the results for a more balanced outlook. That approach accounts for the fact that each tool uses different default assumptions about returns, inflation rates, taxes, and longevity expectations.
If the results are generally pointing in the same direction, a person can feel more confident about the overall picture they paint, the Clark.com article noted. Many free retirement calculators allow users to adjust variables including retirement age, annual spending, savings rate, and expected rate of return.
Experimenting with those assumptions can help illustrate how seemingly small decisions today may change a person’s long-term financial outlook, according to the article.
For anyone with significant assets, complicated finances, or specific retirement goals, Howard acknowledged that a calculator can only go so far. Working with a fee-only fiduciary can help build a more personalized retirement plan based on actual needs, tax situation, and long-term goals, the article noted.
Retirement calculators are planning tools, not crystal balls
Howard’s overall message, as laid out in the Clark.com article, is not that retirement calculators are worthless, but that they are imperfect planning tools that work best when used in combination rather than in isolation.
As Howard framed it, relying on a single calculator’s output as a definitive answer ignores the reality that no tool can fully account for every variable a person will face in retirement.
Running multiple projections, adjusting the assumptions behind each one, and treating the results as a directional guide rather than a guarantee is the approach Howard outlined for listeners looking to get the most out of these free tools.
Even conservative projections can be valuable if they encourage someone to save more consistently, invest for the long term, and think realistically about retirement spending, the Clark.com article noted.
Related: Clark Howard’s 5 best financial tips for smarter spending, saving & investing