In my post from 12/8/06, I did an assessment of a Nest Egg Score Estimator from A.G. Edwards. My assessment was that the tool covered the right categories, but it seemed a little too generous for a hypothetical 55 year old named Ima Retiring. Dimes from Dimes to Dollars, also tested the calculator and noted that the tool seemed to "discriminate against the young" by giving low scores. I agree with her point on the calculator not being accurate for the young.
To illustrate the point, let’s take a hypothetical 30 year old, Bee S. Grad who is:
1. Married
2. 30 years old
3. With dependent children
4. $60,000 income
5. 7 years at the job
6. Has a retirement account
7. Saves over 10% of income
8. Saving more this year
9. Taking more risk with investments
10. Retire in over 20 years
11. Spending 95% of income
12. No house
13. $40,000 in net worth.
Bee’s score was 636 or Fair. I thought this was too of a low rating for the above inputs given Bee's age. It did not seem to take into account that Bee was early in her career - i.e. the family income, percentage saved and networth would increase with time. For curiosity, I tried a couple of changes to check this hypothesis. In question 2 , a change in age from 30 to 55 and/or reducing years to retirement in 10 years did not affect the score, which remained at 636 .
However, increases in networth (Q13), home equity (Q12), percentage saved (Q7) and decreases in percentage spent (Q11) had significant impact on the score. Home equity increases improved scores by about 10 rating point for each step. Improvements in networth, percentage saved, and percentage spent increased scores by about 20 points for each step. Income increases had a small positive effect on the rating.
My updated conclusion is that this calculator does not provide an accurate rating for people more than 10 years from retirement. The calculator does not take into account changes in the networth, home equity, percentage saved, and percentage spent over time. GolbGuru has also noted the same effect for the Fidelity Retirement Calculator in a recent post at Money, Matter, and More Musings.
One workaround to this issue is to input one's final retirement goals into the calculator. I expect that the calculator will provide a good assessment of whether your goal has a possibility of providing a comfortable retirement.
Disclaimer: Examples are illustrative purposes only. Your results will vary with different inputs and assumptions. As with all retirement calculators, please consult with your financial advisor before taking any actions.
Photo Credit: morgueFile.com, Mary A. Pen
This is not financial or retirement advice. Please consult a professional advisor.
Copyright © 2006 Achievement Catalyst, LLC
November Goals Update
3 weeks ago
1 comment:
Thanks for the link :)
About tables in blogger, are you having problems with the "space" and alignment? Like are the tables going way below the heading and stuff?
If that is the case, the easiest thing to do is....let me send you a text file with one of my old tables in blogger, just change the links and the text in it..and other decorative options.
Those large gaps and stuff happen because blogger by its own will puts in some (br) tags when you hit the "publish" button....you can see these (br) tags when you view the html page source.
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