What retirement calculators don't tell you

But, there are holes in those calculators that you could drive a Winnebago through: Even a small error, compounded by 30 or 40 years of retirement projections, could give you a ridiculously wrong answer. And, most of the online freebies are extremely blunt instruments, according to one of their biggest critics, Boston University economist Laurence Kotlikoff (who sells his own competitive calculator at esplanner.com).

It's still worth comparing a few of them to get a rough cut on your retirement planning, especially if you are still years away from actual retirement. Some more full-featured Web site calculators to look at include those offered at dinkytown.com, troweprice.com, retireearlyhomepage.com, and, if you're a Fidelity Investments customer, fidelity.com.

Other for-a-fee calculators can be found at morningstar.com and financialengines.com. But weigh those results carefully, and consider tempering them with these factors.

-- They assume you'll spend more than you really will. It's true that most folks spend a lot in their first year or two of retirement, but that doesn't last. Spending drops dramatically in every decade of retirement, according to data from the Labor Department and research from Ty Bernicke, an Eau Claire, Wisconsin, financial planner. Most retirement calculators start out with guesstimated spending that is about 80 percent of your pre-retirement income and then inflating it by 3 percent a year, the average growth of the Consumer Price Index. But most retirees don't actually spend 3 percent more every year of their lives.

-- They don't count your house as an asset. "You have to live somewhere" is the typical argument given against the retire-on-the-house plans. That's true, but most homeowners do downsize at some point in their retirement. They may stay put for 10 years or more and then sell their home. They may use some of their home equity with a reverse mortgage. So they may be able to use their first batch of retirement savings to get them through the first half of their retirement, and then sell the house to fund the second half.

-- They ignore, or oversimplify, the huge impact of taxes on retirement living. If the bulk of your savings are in tax-deferred accounts, your post-retirement lifestyle could include a high income-tax bill. Your Social Security benefits might be taxed. Or, you might move from a high tax state to a low tax state and save thousands of dollars every year in income and property taxes.

-- They don't give you many options. Crunch the numbers through almost all of these calculators, and they'll end up telling you that you can safely afford to pull 4 percent a year out of your investments, and that's that.

"But there is more than one way to do it and you do have choices," says Alan Klayman, a former Fidelity Investments planner now offering his own retirement calculator at myincomestrategy.com. Klayman's calculator offers several different methods for spending down retirement income; some of the choices allow for larger withdrawals early on in the retirement process.

-- They underestimate how long you'll live. Many of the calculators aim for you to make your money last into your 80s, where the insurance tables typically put your life expectancy. But couples are likely to have at least one partner last into their 90s.