It’s hard to gauge someone’s entire financial picture with only five questions, but I picked out the ones that I thought are most revealing about how someone is doing financially and put together a 2-minute quiz here:
Take it to see your own results and see how you stack up to other readers of this blog (a high-achieving bunch in general!)
Let me know what you think in the comments here, or if you have any recommended improvements to the quiz that would make it easier to answer.
I just discovered two really excellent and easy-to-use/understand retirement calculators from Vanguard (who else?) These are both essential tools for planning for retirement. They will help you determine if you’re going to run out of money in retirement, how much to save for retirement, and how to retire earlier.
#1 Retirement nest egg
The first one computes the likelihood that your portfolio will last in retirement given your spending amounts, how much you start with, and what your asset allocation is.
This is a great tool for determining how much you’ll need in retirement, and if your current nest egg will get you through retirement. You can even include information about any company matching you might receive
It also gives you a feel for the safety of different asset allocations.
#2 Extra savings
The second calculator shows you how much more money you’ll have in retirement if you increase your current contributions by 1 to 2%. You can also use it to simulate how much you’ll have if you increased your contributions beyond that, or with whatever other variables you want to look at.
This handy savings calculator from Lifetuner.org helps you answer that question. Just plug in a yearly savings amount (like $200/month = $2400/year), the ages you start and stop investing, your desired retirement age, and an interest rate. For this last assumption, I would use 6.8% (or 7% if decimals are too much to handle) to match the historical, real (inflation-adjusted) stock market return. That way you won’t fool yourself into thinking you’ll have more purchasing power (which is what matters) than you really will have.
You can run up to three side-by-side simulations. Compare starting ages, amounts you save, or the difference due to small interest rate changes. This is a great calculator for estimating the return from regular investing, or the difference in gain from, say, a 0.5-1% increase in return due to switching to low-fee index funds, which beat the returns from (higher-fee) actively-managed mutual funds 70 – 80% of the time.
You can use this to calculate ANY regular investment, not just one for retirement. For example, if you want to have a house downpayment in 3 years, assume a bond fund return of 3-5% (rates are low today) and then see how much you’d need to invest yearly to achieve your goal. The longer you can wait, the more you’ll have.
Or, to calculate savings for your kid’s college (new parents, pay attention!), enter your kid’s current age as the ‘start saving’ age and 18 as the ‘stop saving’ & “retirement” ages. (“Retirement” in this calculator just means the date when you want to know how much you’re investment will be worth.) Use the historical, real, stock market return of 6.8% if you have a long time (>5 years) to invest, since that’s where your college savings should be.