We may all have our own interests and beliefs, but, if there is one thing we can all agree on it’s that everyone needs a retirement plan. Hiring a financial planner to help us with such a feat can be costly, though, and knowing where to start can also be a mystery. Before speaking with any retirement consultants, it may be wise to obtain an idea of what you can live off each year with your current portfolio as well as how much you might need to invest in order to live off your goal amount. Luckily, the internet has come to the rescue with FIREcalc. But, what is it, exactly, and is it useful?
How FIREcalc Works:
FIREcalc is an online retirement and financial independence planning tool that gives you an idea of whether or not you can live off your current lifestyle with what you have in retirement. More than that, it actually compares how well your portfolio would have done throughout some of the toughest economic times in history dating back to 1887. Through this analysis, it helps to give you an idea of how well your investments will do in the future.
To get started, you simply enter your goal annual spending amount, your current portfolio, and how many years you plan on using your retirement funds. Once applied, the FIREcalc simulation will calculate a simulation based on 30-year increments from the last 117 years. What will be produced is a color-coded graph with year-end balances. From here, FIREcalc states that you’ll be able to see the “big picture” of your current strategy.
Pros:
The best part of FIREcalc is that it is free to use. There is absolutely no payment required nor do you even need to put a credit card on file. You’ll also not need to worry about creating an account, and you can use the retirement calculator as often or as many times as you need. You’ll be able to play out different financial scenarios with only the cost of time.
The homepage of the site provides an overview of what to expect, and, when you click on “How It Works,” you’ll find an informative FAQ that will be important to review prior to actually using the calculator. It explains the importance of evaluating the market throughout history as well as a step-by-step guide to FIRECalc.
Because this free online tool uses trends from the market since 1887, it automatically calculates the average success rate of your plan over time. The higher your success rate, the better your plan, obviously. There is no waiting for these results as they are generated as soon as you click “Submit.”
As you can see from the above results, the success rate of a $900,000 portfolio with a $40,000 annual withdraw for 40 years had a 71% success rate on average. This shows the user that changes need to be made to improve their success rate, and, because there are unlimited uses, the user can continue to crunch numbers to see what would be better for their current portfolio along with seeing how much they may need to increase it to achieve the desired yearly withdrawal amount.
Cons:
Although quick to use, the visuals of the site are a little underwhelming and overbearing with text. If you use the calculator without reading through the content you may find yourself easily confused, especially considering the historical factor FIREcalc uses to calculate results. It can also be easy to miss the calculator on the first page, as it is not visible right away, even when you click “Calculator” along the top tab.
It’s also important to note that FIREcalc is not meant to predict what will happen, but rather what will not happen. There are limitations, so even though you can incorporate your social security, you can’t tweak it to get the results you want. Part of this limitation includes not incorporating taxable versus non-taxable portfolios, leaving more room for inaccuracies.
Is It Useful?
The FIREcalc tool may not be 100% accurate, but because it is based on predictions, it can still give you an idea of how strong your portfolio is. The sooner you can start making adjustments, the better for your financial future. If nothing else, it’s another free retirement planning tool that shows you what you should consider setting aside to live the life you want. Just remember, the goal is to give you a general idea and is not an end-all solution to retirement planning.
Have you ever used FIREcalc? What are your thoughts?
Jenn Clark is a writer, PR specialist, entrepreneur, blogger and coffee enthusiast. A lover of laughter, traveling and cheese, she’s written about her life experiences here at suburbanfinance while at the same time growing other young professionals. You can find more of her work at Jennblogs.co.