Retirement calculators are no substitute for the calculations that a financial adviser will make when taking a holistic look at your unique personal finances and needs.Picture: 123RF/AVEMARIO
A replacement ratio is the pension your savings will provide when you retire expressed as a ratio of the salary you were receiving just before you retired. Because most people have fewer expenses in retirement, a replacement ratio of 70% is often considered enough. But everyone’s financial circumstances are different and if, for example, you are going to be paying a home loan in retirement or supporting dependants, you may need a higher replacement ratio.
Some calculators will tell you how much you need to have saved by the time you reach retirement, while others will tell you how much more you need to save, and some will show you both. Others will show you at what age in retirement you will run out of money based on the amount of money you want as an income in retirement.
However, some of the questions are poorly framed. The easy questions include how much you need in an income before tax in today’s terms, the number of years until you retire, and the number of years you need an income in retirement. But you will have to provide an expected inflation rate and an expected rate of return on investment. The last question is: “Monthly income expected at retirement, for example existing policies”.
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