“Crunch the numbers.” It’s great advice for anyone planning retirement, but what does it mean exactly? Which numbers? And what tools should you use to “crunch” these numbers? Let’s cut through the clutter and examine the financial calculations you should try to make if you’re interested in opening a Self-Directed IRA, or simply want to get your footing as a retirement investor.
Calculator #1: Simple Retirement Calculator
Make a simple search for retirement calculators on the web, and guess what? You won’t exactly have a lack of options. That’s why it might even be a good idea to run some simple numbers through multiple retirement calculators, just to give yourself an idea of the kinds of contributions you will have to put away to build the retirement of your dreams.
Calculator #2: RMDs
RMDs—also known as Required Minimum Distributions—are what you have to take out after you reach a certain age. That’s right: you cannot just keep investing and investing as you work beyond retirement age.
Calculator #3: Compound Interest
There’s something of an invisible value in compound interest. 10% of 100 is 10, but the next year, that same 10% becomes 11. Stack that again and again and you begin to build serious value. Here’s a compound interest calculator from Money Chimp that will help guide you.
Calculator #4: Rate of Return
What are you actually getting for your investments? What have your returns given you so far? Understanding where your RoR has been is critical to determining whether or not your current strategy is working for you—or if it needs tweaking. You can even compare between specific retirement accounts to see if your Self-Directed IRA is beating out a more traditional 401(k), for example. Here is a rate of return calculator you can use.
Calculator #5: Mortgage Calculator
What should you expect to pay if you have a mortgage? What will you have to do to pay off your house before retirement? Or what might your Self-Directed IRA expect to pay if you get a non-recourse loan? Use a mortgage calculator to help determine exactly what your real estate situation will be.
Calculator #6: Annuity Calculator
If annuities fall under your retirement plan, you need to know what’s going to happen. One benefit of the annuity is that it tends to be predictable, making your advance calculations more accurate. Here’s an annuity calculator you can use to get an idea of your future returns.
Calculator #7: Budget
Maybe it’s not a calculator per se, but if you have a budget app or an Excel spreadsheet that helps you understand your current financial situation—and how much money you can put away for retirement—you will be miles ahead of anyone else who’s just playing it by ear. Think of a budget as a critical road map to retirement, even if it does not quite outline what you can expect to have in thirty years, down to the dollar. But retirement planning is just as much a present-day calculation as it is a future one.
Calculator #8: Present Value
What’s your net worth? Do you know? With the present value calculator, you can find the amount you would need to have in value today in order to reach a specific balance in the future. Use the present value calculator like a GPS: it should tell you whether your current pace is fast enough for your retirement plans, or whether you need to develop a new plan for your retirement nest egg.