How to select a retirement income calculator

1. Compare results from several calculators

Comparing different online calculators may sound obvious, but few people bother to try several retirement calculators.

Every calculator is different, as super funds usually tweak the basic tool to suit their particular membership. Usually they also have varying after-tax investment return objectives for each of their investment options.

An effective way to get a realistic picture of how much you are likely to have in your super account at retirement, or to see how long your super savings are likely to last, is to compare the results from several different calculators and pick something in the middle.

2. Change the personal assumptions

Depending on your personal circumstances, using the default assumptions in your super fund’s retirement calculator may not give you an accurate projection of your potential retirement income. Changing the preset figures (such as your retirement age) will give you a more personalised result.

If you want a higher level of retirement income, or plan to retire later than Age Pension age, make sure you are able to enter this information into the calculator. Otherwise, the projection provided by the calculator will give you an inaccurate idea of how much you need to save and when your account balance is likely to run out.

Planned career breaks are also important to include, as missing out on Superannuation Guarantee (SG) contributions from your employer for several years will have a significant impact on your final super account balance and income in retirement.

3. Check default investment returns

Retirement calculators generally assume a set investment return for each investment option in the super fund (such as cash, balanced or high growth) and base their projections on these investment returns.

Checking these preset returns and deciding whether you think they’re too optimistic is particularly important if you’re only a few years out from retirement. If the outlook for investment markets is poor, using an investment return based on past performance or one too high for future conditions, will result in an overly optimistic projection. You may also risk running out of money towards the end of your retirement.

4. Add the Age Pension

A good retirement calculator should create a retirement income projection that includes any eligibility for the Age Pension. Although this is slowly changing, most people still haven’t saved enough in super to fully fund their retirement, so they’re likely to receive at least a small part Age Pension – particularly in their later retirement years.

The best calculators include some potential income from the Age Pension in their projections. They often show a graphic representing the income mix likely to come from your super account, any earnings on assets outside super, and any potential income from the Age Pension. The ASIC Moneysmart retirement planner gives you the option of including or excluding Age Pension entitlements.

5. Consider assets outside super

Earnings on any investment assets you hold outside super could be an important component in your retirement income, but not all super calculators give you the option to include these earnings.

Although younger savers may have limited assets other than super, older or wealthier super members often have significant non-super assets such as term deposits, shares and investment properties. Taking into account investment earnings from your non-super assets is important if you want to create a realistic picture of your likely income in retirement.

The better calculators also allow you to include whether or not you are a homeowner, as having to pay rent will have a major impact on your retirement expenses.

6. Don’t forget fees and insurance premiums

The administration fees and insurance premiums paid from your super account can be a significant cost, so it’s worth checking the preset assumptions of the calculator you are considering. Often fees are assumed to remain constant over the projection period, while some calculators allow you to alter these fees within certain ranges.

Retirement calculators also usually assume you will pay a steady premium for the insurance cover provided by your super fund every year until retirement. A common default setting for insurance is the cost of basic cover for TPD and income protection for a member aged 40, but this may not reflect your personal circumstances. This cost may be too expensive for younger super fund members and too cheap for older members who face higher premiums as they age.

7. Take your partner into account

Not every retirement calculator automatically allows you to include information about your partner’s super and their planned retirement date. Many assume both partners will retire at the same time, which often isn’t the case, particularly if they are different ages.

To gain an accurate picture, make sure the calculator you use allows you to enter detailed information for both partners, as this can make a big difference to your retirement income.

8. Work out your retirement income budget

A good retirement budgeting tool can help you work out how much income you will need to live a comfortable lifestyle in retirement. Once you set a desired annual income level, the calculator uses this amount to work out how long your retirement savings will provide this level of income.

Some calculators offer tools that help you set a desired budget for different expenditure categories (such as energy and food), and then use this information to establish a desired annual income in retirement.

The best ones also provide weekly or monthly comparison figures from the Association of Superannuation Funds of Australia (ASFA) that show the income required to live a predetermined ‘comfortable’ lifestyle in retirement.

9. Consider your longevity risk

The best retirement calculators can also provide useful information on your chance of survival at different ages. For example, the projection will show your remaining retirement income at a particular age and that the probability of you still being alive at that age is 80%.

This information is based on the Australian Life Tables compiled by the Australian Government Actuary. It shows average lifespans from your current age so you can see how likely you are to outlive your super savings.

10. Trial scenarios and stress testing

Other interesting calculator tools allow you to trial different ‘what if’ scenarios. This means you can project what will happen to your retirement balance if you change variables like your retirement age or personal contributions.

Real financial nerds may want to try the calculators that allow you to ‘stress test’ your retirement savings in different investment scenarios. These types of simulators can show how up to ten different market scenarios would affect your retirement savings over time, with the projected retirement savings levels automatically adjusted.