Online calculators are a useful tool for 401(k) plan participants
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Online calculators can be a useful tool for 401(k) plan participants to determine whether they are saving enough toward retirement, experts say.
The calculators take into account the amount of money a plan member is saving and employer matches, amortizing those sums over the number of years the member plans to work. The calculators also consider sums already amassed in a 401(k) account and expected defined contribution plan income.
In general, retirement income calculators recommend that plan members have enough money in their 401(k) accounts at retirement to replace 80% of their incomes. If the calculator determines a shortfall may occur, it recommends that the plan member either increase contributions or delay retirement.
Some calculators, such as that offered by Hartford, Conn.-based Prudential Financial Inc., are linked to members' ac-counts so they can make contribution changes with the click of a button.
One-third of plan members who use Prudential's calculator take action, usually increasing contributions by at least 4% of salary, according to Jamie Kalamarides, senior vice president for institutional investment solutions. “The best way to encourage people to save more today is to help them calculate their retirement income gap,” he said.
But relying solely on the assumptions made by 401(k) retirement income calculators can be dangerous, the Society of Actuaries warns. “Shock events” such as unexpected health crises or market downturns must be taken into consideration, the society warns.
Moreover, delaying retirement may not always be feasible, said Joe Tomlinson, a member of the SOA and managing member of Tomlinson Financial Planning L.L.C. in Greenville, Maine.
“Very often people end up not working as long as they planned. Illness, disability, the need to care for ill family members are all factors,” he said.
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