Retirement calculator has limited value


There is a new version of the interactive Ballpark Estimate calculator, for use in estimating how much you’ll need to save for retirement, available.

The calculator has been around for a while and is produced by the Employee Benefits Research Institute, a nonprofit organization dedicated to studying retirement in America. The EBRI recently updated the calculator, which is available through a link at the Thrift Savings Plan’s website, under the Planning and Tools tab.

Back in 2007, I dedicated a column to the perils of using the calculator to plan for retirement. At that time, I was unenthusiastic about the calculator’s capabilities and reliability for practical retirement planning.

While the new version of the Ballpark Estimate calculator is improved — by adding the capability to include sources of retirement income, like a federal annuity, Social Security benefits and part-time work — it still falls short of being anything more than a simple calculator.

This isn’t a criticism of the calculator, or the EBRI, as much as of its capability to serve as anything more than what it claims to be: a ballpark estimator. You give it the numbers and it does the math — nothing more or less. Still missing from the calculator’s results is any accounting for investment, inflation or mortality risk — all important sources of risk to any retirement plan.

Nor will the calculator handle anything more complex than a steady stream of spending over the course of an entire retirement. If you’ll need to spend significant sums of money on things like a wedding, tuition, a real estate purchase or travel, you’re on your own.

I appreciate and support the EBRI’s effort to produce a useful calculator, and they have done just that. A dangerous pitfall is that savers may rely on the calculator in making key decisions about retirement, or that its use will lead to a false sense of confidence about the ability to retire and spend. In defense of the EBRI, it has produced a useful math engine that will help users to roughly estimate the amount of money they’ll need to save for retirement. I support the EBRI’s mission and the availability of tools to help workers maximize the value of their financial resources. You need to be careful, however, to avoid putting more faith in these tools than they deserve, or were designed to support.

I ran the calculator for a hypothetical saver at age 55 who plans to retire at age 60 with a Federal Employees Retirement System annuity and, eventually, Social Security benefits. I was required to estimate the future rate of inflation, the nominal rate of return on the investment portfolio, the age of death, the growth in federal wages between now and retirement, and the amount of future Social Security and FERS annuity benefits. Some of these are fairly easy to estimate, while others are quite difficult. All of these estimates are subject to the risk of error in estimation, as well as the risk of variations in realized performance.

In my trial, for example, the calculator estimated that my hypothetical retiree can rely on regular withdrawals from savings that amount to more than 7 percent of the initial balance, per year, until age 90. By most standards I’ve encountered, this is considered a high — and probably unsustainable, or at least unsafe — withdrawal rate.

The problem is that the calculator takes your input assumptions as certainty. It’s not asking the what-if questions. What if inflation is different than your estimate? What if the estimated rate of investment return isn’t realized each and every year of your life? What if you live longer than you expect to live? In addition to accounting for the possibility of varying outcomes, it is important to account for the probability of these variations occurring.

A more useful analysis would not only account for the possibility that you will live to age 100, but also the probability that this will happen.

When it comes to retirement planning, the “Holy Grail” is certainty. Unfortunately, there is no such thing. The Ballpark Estimate is a useful tool, and I encourage you to give it a try. Just make sure that you don’t mistake it for anything than it is: a simple mathematical calculator.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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