A retirement calculator can be a valuable tool to help you plan for the future and determine whether you are saving enough to reach your goal. However, it is important to know what you are putting into the calculator and the assumptions used so that you can properly evaluate its output. Remember that “garbage in, garbage out” applies to planning calculators as well. Source ex-ponent.com

There are many different types of retirement calculators, but they all require the same inputs to work – your desired annual retirement income, your retirement age, life expectancy, a rate of investment return and the projected inflation rate. These are all difficult factors to predict with any accuracy.

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The standard assumption is that you will need to replace 70 percent of your pre-retirement household income in retirement. While that may be sufficient if your mortgage is paid off and you are in good health, it is not a guarantee of a secure retirement. Those with more expensive lifestyles or who have ambitious goals in retirement will likely need more than that.

The other inputs include your total current household savings in retirement accounts, such as 401(k) plans, IRAs and stock portfolios. It also includes your yearly contributions to these accounts. Finally, it assumes a target annual investment return of 5 percent (which is based on historical averages) and the rate of expected inflation. The calculator then compares your target retirement savings to the amount you are currently saving each month and lets you know how much you need to save additional money to reach your retirement goals.