ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

Retirement Planning Calculators

A recent article by syndicated columnist Mark Miller discusses popular retirement calculators and flaws that could lead to serious miscalculations when planning for retirement.

Twelve retirement calculators created by financial services firms, software companies, nonprofits, and the government were analyzed by the Society of Actuaries. Six of these calculators for consumers are free of charge. The Society published a report outlining key things to look out for when using retirement calculators:

-- Social Security Projections. Most retirement calculators project Social Security income using current earnings, age, and the year a person expects to retire. The best projection tool is available from the Social Security Administration; the projections are based on a person’s actual earnings history.

-- Rate-of-Return Assumptions. Three of the five free calculators used pre-set future investment rate-of-return assumptions that cannot be changed. The percentages for the rate-of-return varied widely; some assumed five percent, while others assumed ten percent. You must be comfortable with the pre-set rate of return in order to use the calculator.

-- Life Expectancy. Some calculators automatically input the life expectancy figures. A 65-year old man can expect to live another 17 years, and a woman of the same age can expect to live another 20 years. The calculators that automatically input the life expectancy figures do not take into account differences based on race, income, and gender, and they also do not take into account that a person may live longer than the averages. If you are given the opportunity to input the life expectancy prediction, you should base your inputs on your health and family history.

-- Housing. The calculators vary in the assumptions they make about what you may do with your home in retirement. Few analyze the impact of carrying a mortgage into retirement; some assume you won’t liquidate your home, while others assume you will sell and downsize.

-- Inflation. None of the free calculators included inflation as a risk in retirement planning. Some tools use a default inflation rate ranging from 2.3 to 4.6 percent, while others let you use just one inflation percentage forecast. Inflation can vary widely over time, and the calculators can provide inaccurate information on the purchasing power of your assets in retirement.

-- Spouses. Few calculators assist couples in forecasting retirement income for a surviving spouse. They rarely allowed couples to enter separate information and different retirement dates for each spouse. Social Security benefit issues for couples can be complex and are outside the scope of an outline calculator. Couples will want to run several calculations using different life expectancy scenarios in order to better determine the income needs for both spouses.

Although retirement calculators can be helpful tools, the Society of Actuaries report highlights the dangers of do-it-yourself financial planning. The attorneys at The Estate Planning & Elder Law Firm, P.C. can help clients and their families with their estate, investment, insurance, veterans benefits, and life care planning needs.

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The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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