Be wary of online retirement planning calculators

A lot of websites offer retirement planning calculators, where you can enter your age, assets, and other types of information and find out how much income you can expect in retirement.

These calculators may be somewhat useful, but many of them have serious flaws, and in general they produce results that are way too optimistic, according to a new study by the Pension Research Council.

The Council studied calculators provided by reputable organizations such as Fidelity, MetLife, AARP and the U.S. Department of Labor.

According to the study, many calculators are flawed because they:

  • Don’t consider what will happen if you outlive your “average” life expectancy;
  • Don’t consider the possibility of a spike in inflation;
  • Don’t consider possible large medical or long-term care expenses;
  • Allow people to enter unrealistic assumptions, such as risk-free rates of return over 10%;
  • Assume everyone will receive the same Social Security benefits; and
  • Ignore the effect of taxes, inheritances, the value of housing, and the possibility of unusual events like the 2008 financial meltdown.