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What to keep in mind when using a retirement calculator

Posted by Alex Conde June 14, 2019 • 5 min read

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  • What is a retirement calculator and how does it work
  • The limitations of retirement calculators
  • The importance of considering inflation and fees
man using Questrade calculator on laptop

Retirement calculators can be handy tools for finding where you are on your journey to retirement. But, like all tools, they have a specific purpose. When using the calculator—or any other retirement planning tool—it’s important to take the result with a grain of salt.

Every tool has its use. You can’t use a hand saw to hammer in a nail (or, at least, you really, really shouldn’t try). And while retirement planning tools aren’t physically dangerous, you should make sure that you understand how retirement calculators work so that you can understand their place in your retirement toolkit.

Retirement calculators – your financial GPS

Much like a GPS uses triangulation between satellites to figure out where you are and where you are going, retirement calculators use the information you provide to help you figure out the path to your retirement goal. 

For example, our retirement calculator asks you for a few personal inputs:

  • Your current & retirement ages: These determine the time frame that you have to reach your retirement goals.
  • Annual income (on retirement): This will determine your ultimate goal. This is the amount you will need to take out every year after you retire without depleting your retirement savings. 
  • Current & monthly savings: This is the progress you have made, and plan on making, towards your retirement goals.

Based on this data, the retirement calculator can tell you if you’re on track for your retirement goals. However, what it doesn’t do is check if you’re going to the right destination. This is why it’s so important to figure out your retirement income goal before committing to a plan.  

How to set your own retirement goals

The basics of setting your retirement goal boils down to expected expenses. Do you plan on travelling the world, or spending most of the time working in your garden? Will you keep your current home, or downgrade to someplace less expensive and easier to maintain? There are a number of resources available to help you determine what your target income ought to be.

However, when you’re figuring out which retirement goals you should be aiming for, there are a couple of considerations you should make beyond the basics of expected lifestyle expenses.

Many retirement calculators don’t take into account the fees that you are charged for your investments. Fees tend to eat away at the long-term growth of your portfolio and increase the time it takes to reach your retirement goal, making a pretty major impact on your bottom line. 

Our retirement calculator makes a point of taking fees into account. The “Current projection” of your results take into consideration the average mutual fund performance and fee structure, while the “See what investing in Questwealth Portfolios does” button shows the difference that low fees can make:

A screenshot of calculator

Another factor that might impact your retirement planning without your notice is inflation. Inflation is the long-term force that reduces the value of money. Typically only a couple of percent each year, inflation tends to add up over a long period—meaning “today’s dollar” will be worth a lot less in the future. Most retirement calculators are designed to give you a snapshot of what you would need to retire in today’s dollars, rather than trying to forecast future rates of inflation.

We see the impact of inflation every day on purchases we make. It’s why we remember our grandparents reminiscing about a time when candy bars were a nickel, and why today’s children will someday tell their grandkids that they remember when candy bars were a dollar. 

Inflation can significantly impact the long-term value of your savings. To see the impact of inflation over time, look at the Bank of Canada’s inflation calculator. Inflation impacts how big of a retirement goal you need to set, as the buying power of your retirement savings will decrease slightly with time.

Be sure to look at all the factors when planning your retirement journey. Use our retirement calculator to help guide you, but be sure to remember that its results are only one piece of the retirement puzzle. A bit of time spent considering the bigger picture today can pay huge dividends in the future. 


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The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.