This article appeared in the Cazenovia Republican on July 4th 2012. 

Some people saving for retirement have always driven a Mercedes and they make retirement plans so they can drive one in retirement. These investors with half million or more in retirement assets have a hands-on financial adviser who will help them make an estimate of how much they should save in order to retire.

For the rest of us—non-Mercedes drivers—we are left to figure it out on our own.

Never fear, there are some free tools that can help us with these challenging estimates and calculations. Some of these tools are much, much better than others. For example, one way to estimate how much you need to save for retirement is to turn on your financial calculator (a device or online) and go through a series of “present value” calculations. I don’t recommend trying this! Another free option is to utilize retirement planning software. Most retirement plan providers offer clients an online planning tool. All too often that software is clunky, poorly integrated with your account and difficult to use. But there is a great alternative to these poor choices.

One of the best free tools— SmartMoney.com’s Retirement Planner Tool.

It is very easy to use and does not require that you open an account or register with Smartmoney.com. However, if you would like the software to save your retirement plan, you do need go through their registration process. Personally, I’d be cautious about saving those personal calculations online. I prefer to print out my results and not register, but it is up to you. To locate the tool just go online and search for SmartMoney Retirement Planner.

Using the SmartMoney Retirement Planner

On the “Your Held Assets Tab,” establish your investment time horizon by entering your current age, desired retirement age, current salary and annual savings as percentage of your salary. Then you should add all retirement accounts (IRA’s, 401 (k), etc.) and their associated values. The tool will then use your information to calculate how much your retirement asset will be worth at retirement. You can improve this estimate inputting more info.

On the “future income” tab you can enter other earned income that you may receive in retirement and also estimate the amount of your social security benefit. The “retirement spending” tab tool will break down your retirement expenses on a yearly basis into housing, transportation, medical, essentials, discretionary and taxes. You can tweak these spending amounts by selecting whether you believe you will be an active or a less active retiree. On the “advanced settings” tab some of the things you can tweak are your expected investment return percentages, life expectancy, tax rate, and the inflation rate.

Once you have completed entering your information, look at the top of Smart Money Retirement Planner webpage to see whether the tool says, “Based on your retirement plan, you cannot afford to retire at age X,” or “Based on retirement plan you can afford to retire at age X.” If you “cannot afford to retire,” you can click the blue link that says, “Explore more options” and adjust your inputs until the planner returns the more desired outcome of being able to retire.

As you can see, this free tool can be tweaked extensively or you can just enter your basic parameters for a rough estimate. Whatever your choice, once you have done all this, try to consult a financial professional before making any investment related decisions.

Don’t let your years of hard work be wiped away because of poor planning!