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Archive for Sunday, March 4, 2007

Better ways to crunch retirement numbers

March 4, 2007

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You don't hear this one every day: Americans are saving too much for retirement!

Well, not all Americans, but some.

This is the view of a small group of academics who think the standard "static" financial calculators found on mutual fund and brokerage Web sites overestimate the nest eggs needed to fund a comfortable retirement. Newer "dynamic" calculators give a more realistic view of the odds that a retirement plan will meet the investor's goals, they say.

The newer dynamic calculators run the figures hundreds of times, each time with different assumptions about returns, inflation and so forth. Afterward, they tell you what percentage of the calculations achieved the financial goal.

One of the best-known of these calculators is T. Rowe Price's free Retirement Income Calculator at www3.troweprice.com/ric/RIC/. Play with the inputs to see how saving a little more each month or retiring a little later will affect the outcome.

Then move on to the much more elaborate Advanced FIRECalc at http://firecalc .com/index.php. I've looked at many free Web calculators, and this is my favorite because it gives the user vast control.

For an even better look at retirement investing, you may have to spend some money. One of the best-known services is offered by Financial Engines at www.financialengines.com. It costs $150 to $300 a year, but you may be able to get it for free through the mutual fund company that provides your 401(k) or similar plan.

And don't assume the static calculators are worthless. I'm very impressed with the Retirement Planner in the Quicken financial program found at any computer store.

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