How Retirement Calculators Overestimate Retirement Income

Retirement calculators you find on the internet can be a great tool for getting a general idea of your retirement readiness. But do not be fooled into thinking that the numbers they crunch and spit out are truly representative of your situation. In this video, we use a highly-ranked retirement calculator that Google links to. I was actually surprised to see this calculator ranked so highly actually but it intrigued me.  So, I figured I'd better check it out. What I found was a decent tool that can provide a general sense of your retirement well-being.   But there is a significant problem when it comes to  estimating your Social Security benefit.  So, much so in fact, that I devoted an entire video to explain.  First though you've got to have a basic understanding of how your Social Security benefit is derived.   The Social Security Administration takes the top 35 years of your working career.  Based on your income over those 35 years, it provides an Average Indexed Monthly Earnings (AIME) amount. They index your yearly earnings for inflation, add those 35 years of earnings, and then divide by 420.  This is your AIME. Your benefit is based on what the AIME is.   And here is my problem with this retirement calculator particularly, but most retirement calculators generally.  They assume the earnings you make today reflect what your AIME is!  And this may or may not be anywhere near the truth. What if this year you made $125,000, but in previous years you only made $50,000? Well, using this calculator would estimate your Social Security benefit as if you made that  inflation-adjusted equivalent to that $125,000 each and every year for the last 35 years! This would provide a huge overestimate of your Social Security benefit.  If you were to use this analysis to evaluate your readiness for retirement, you'd be way overshooting your income.  This could be devastating actually towards your future.  Thus, while I appreciate the efforts and again for a starting point calculators like this are adequate. https://www.calcxml.com/calculators/retirement-calculator?skn=#detailedResultsTop When it comes to YOUR specific situation though, no way you should rely on this, or any other retirement calculator you can find online.  The first thing you need to do is go to SSA.gov and sign up to get YOUR specific statement.  Check your AIME and make sure it looks right. If there is a mistake in there, you need to fix it, ASAP.  When it comes to your retirement EVERYTHING is contingent on this one number, what your AIME is.  https://www.ssa.gov/oact/ProgData/retirebenefit1.html Do not overlook that! ================================= If you like what you see, a thumbs up helps A LOT. So, give me a thumbs up, please! Don't forget to SUBSCRIBE by clicking here: https://www.youtube.com/channel/UCSEzy4i9xrKPoaU9z0_XbmA?sub_confirmation=1 GET MY BOOK:   Strategic Money Planning: 8 Easy Ways To Put Your House In Order It's FREE if you're a Kindle Unlimited Subscriber! https://amzn.to/2wKGi50