Using Retirement Calculators

If you ever fiddled around with an online retirement calculator, you may have felt uneasy with the results. That’s because these calculators, as imperfect as they are, will generate meaningless results if the calculations are based on faulty assumptions.

Of course, we are the weak links since we’re stuck providing those assumptions.

T. Rowe Price, the mutual fund company, hopes to help amateur investors by sharing the assumptions it commonly uses for a variety of its own studies on retirement and investment planning. Researchers at the firm, for instance, generally use a life expectancy of 95. A husband and wife, who are 55 years old, have a 45% chance of at least one spouse living to that ripe old age.

The firm also uses a pretax investment return of 7% for retirees and 8% for everybody else. The firm assumes that retirees split their portfolio this way: 40% stocks, 40% bonds and a 20% mixture of money markets and short-term bonds. For younger investors, T. Rowe Price assumes the portfolio is divided this way: 80% stocks and 20% bonds.

You can find more on retirement assumptions by reading the summer issue of the T. Rowe Price Report.

If you want to play with an excellent retirement calculator, try the one on T. Rowe Price’s web site.

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