Checking out Betterment’s RetireGuide

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I logged in to Betterment this week and saw that they have a new feature called RetireGuide (RG). There are a lot of these kinds of retirement plan calculators floating around on the internet that I’ve dabbled with, so I thought I’d give this one a try!

RG promised to help me determine the following:

  • Am I saving enough?
  • When can I retire?
  • Am I invested correctly?

Sounds good so far! First up came a series of questions about my marital status, income, and goals, many of which were automatically filled from my account information. But the truly key fact that was most difficult to determine was my desired age of retirement.

In my first go-around of the RG, I entered that age as 60 (19 short years away). The plan I got back wasn’t as rosy as I’d hoped:

  • Based on my current income, we set my estimated annual retirement spending (in today’s dollars) is $55,000.
  • It added my estimated social security benefits, but reduced them by 1/4 due to “instability of the system”. Swell.
  • My current annual retirement savings entered was $22,000 (comprised of 401k with match, Roth IRA, and Betterment contributions).
  • The result: I may only have $42,500 to live on per year at my current savings rate. I suppose that could be enough, but I don’t want to skate by. I want to live well when I decide to stop working.
  • In order to hit my target annual retirement spending, I need to save $37,500 per year! Yikes!

Needless to say, I was not satisfied with those numbers. I decided to run the RG again with one change: pushing retirement to 65 years old. What I got back was better (sort of):

  • The new result: I could reach $60,000 per year in retirement income.
  • In order to hit this target annual retirement spending, I need to save $17,800 per year! That’s $4,200 LESS than what I’m saving now.

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While it’s good to hear that I am on track for “regular” retirement at age 65, I don’t think that’s a lofty enough goal for this savings-obsessed gal! I’m also not certain what I want my “retirement” to look like. I think a “financial independence” goal is a more interesting prospect for my future. I must give this more consideration and will do so in part 2 of this series.

At the end of my RG experiment, it offers recommendations on how to save (in this order):

  1. 401k up to employer match
  2. Max out my Roth IRA ($5,500)
  3. Go back to funding my 401k & other taxable accounts

This advice isn’t too shocking, although there is an argument to be had to max out my 401k ($18,000 this year) to reduce my AGI as much as possible, then move on to the Roth. I’m not sure which way to go on this and will look deeper in part 3 of this series.

And of course, the last page of the RetireGuide contained two oh-so-convenient links to help me open a Roth or taxable account with Betterment. No matter where you look these days, someone is trying to sell you something…

(Image: stevendepolo)

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