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Tools & Calculators
Income and Spending
With this calculator you can ballpark a client's net worth in two minutes. Enter round numbers for assets, which include home and other real estate, personal property, investments, and cash. And do the same for liabilities—mortgages, car loans, student loans, and credit card debt.
There are many household budget calculators out there. The key to their usefulness is how the spending categories are arranged. This budget calculator has about 30 categories—enough to show where the money is going but not so detailed that it's cumbersome to manage. The calculator shows annual spending and the percentage allocated to each category. Anyone who wants to track personal spending will find this useful, but it is especially good for estimating retirement income needs. For clients who have the freedom to design their own lifestyle, enter spending numbers as if the client were already retired, then build the retirement income plan around that number.
Retirement spending calculator
For clients whose standard of living will be determined by available assets, here is a simple calculator that tells how much income they can draw from a particular lump sum. Enter the starting amount, rate of return, and number of withdrawals, and the calculator shows how much can be withdrawn so that the money will be exhausted when all withdrawals have been made. Big drawback: no inflation adjustment.
Inflation-adjusted retirement spending calculator
The calculator shown in Figure 2 adjusts for inflation and provides year-by-year withdrawal amounts and ending balances. These retirement income calculators are admittedly simplistic, assuming a constant rate of return throughout retirement. But at least they can serve as a starting point to a more detailed retirement income plan.
Social Security
Social Security retirement income calculator
Use this to make an initial ballpark estimate of the percentage of total income Social Security will provide (See Figure 3). It does not provide a good estimate of actual Social Security benefits, because it does not take into account previous earning history. Also, it assumes that post-retirement income will be the same as preretirement income without allowing you to fine-tune the income assumption. But it's quick and includes a cool pie chart that illustrates the need for other sources of income besides Social Security.
Calculator for when to take Social Security benefits
This simple calculator (Figure 4) is designed for clients and leaves out many of the factors that go into determining the best time to apply for Social Security benefits, such as COLAs and survivor benefits. However, it is visually appealing, explains the break-even age (the age beyond which the client must live in order to be better off delaying benefits), and gives statistics on the likelihood of living past the break-even age. Use it as an introduction to the "when to apply for benefits" conversation with clients approaching retirement age.
Retirement
This calculator attempts to give a more accurate estimate of a person's life expectancy than the standard mortality tables. If a calculator asks about seat belts and driving habits, you know it's using a statistical approach (common with calculators on life insurance sites). These calculators typically add a year or so to life expectancy if you wear a seat belt and drive safely. But really, if you're in a fatal car crash, your life ends then and there. The Living to 100 calculator focuses on health habits and family history. (Looks like my retirement income plan will need to last me to age 102.)
Calculator for self-employed retirement plan maximum contribution
All you need is a client's age and Schedule C net profit to produce a nice report showing how much he or she can contribute to the various retirement plans—profit sharing, 401(k) + catch-up, solo 401(k), SIMPLE IRA + catch-up, SEP, and defined-benefit plan. Use this as an estimate only. Get the official numbers from the client's tax advisor.
72(t) distribution impact calculator
Calculators 11 and 12 estimate the amount that may be withdrawn from an IRA without penalty prior to age 59½ under Section 72(t). Again, use this for ballpark purposes only, and work with the client's tax advisor to obtain the official numbers.
Required minimum distribution calculator
This calculator (Figure 6) shows the required minimum distribution (RMD) from an IRA for clients who are 70½ or older. The calculation is based on the IRA value on Dec. 31 of the previous year and utilizes the appropriate life expectancy schedule (the Uniform Lifetime Table or the Joint Life Expectancy Table, if the beneficiary is a spouse who is more than 10 years younger).
Beneficiary required minimum distribution calculator
This calculator shows RMDs for beneficiaries of IRAs.
Roth IRA conversion calculator.
This calculator gives a side-by-side comparison of after-tax income for a traditional IRA vs. converting it to a Roth. If the Roth income is higher, it makes sense to convert. Enter the client's current age, the age at which income will start, and the number of years to receive income. Also enter a rate of return before and after retirement, the tax bracket before and after retirement, the value of the IRA, and whether taxes will be paid from the account or from other funds. One minor drawback is that the tax bracket in retirement does not factor in taxes on Social Security benefits, which may raise the effective tax rate. However, the calculator does a good job of crunching a lot of numbers and taking into account nearly all the relevant factors.
Tax
This is a quick and easy way to ballpark a client's income tax liability for 2008.
Or you can skip the above calculator and go straight to the marginal tax rate calculator shown in Figure 7. Enter the client's expected gross income, filing status, number of dependents, and itemized deductions. The calculator shows estimated taxes, average tax rate, and marginal tax rate, along with a good explanation of marginal tax rate. Example: "Adding $1,000 to your income would result in a 28.00% marginal tax rate.
This calculator (Figure 8) shows how much will be distributed to heirs after expenses at death, charitable contributions, transfers to spouse, and estate taxes. You'll need to enter all of a client's assets and liabilities as well as charitable contributions and transfers to spouse. Again, use for ballpark and illustration purposes only—it's too simplistic for adequate estate planning.
Mortgage
This is a very simple, very good calculator for estimating mortgage payments. Enter the loan amount, the interest rate, and the number of payments. The calculator displays the year-by-year loan balance along with a graph showing the declining balance and cumulative payments over the life of the loan.
Mortgage qualification calculator
This calculator uses standard lending guidelines to show how large a mortgage—and how expensive a home, based on the down payment—a client can afford. Housing costs should be no more than 28% of gross income, or total housing plus monthly debt obligations should be no more than 36% of gross income. The calculator chooses whichever ratio is less and calculates the maximum home price. Enter the client's gross income and monthly debt obligations, along with the interest rate on the loan, the down-payment amount, and property taxes and insurance on the home.
Bankrate's mortgage refinance calculator
Bankrate's mortgage refinance calculator shows how many months it will take to recoup the costs of refinancing. Clients can then decide if they plan to stay in the house long enough to make refinancing worthwhile.
Life Insurance
Finance
This is a very simple calculator to get clients started saving and investing.
Portfolio performance calculator
Enter the starting and ending amounts—along with any additions and withdrawals and the time frame—and the calculator (Figure 11) will give you the average annual rate of return. It's not perfect because it doesn't take into account when the additions and withdrawals were made, but it's a good ballpark estimate for clients who have no idea how their investments have performed.
This is very straightforward. Enter today's date, a future date, principal amount, rate of return, and compounding period (daily, monthly, or annual). The calculator shows what the investment will be worth in the future.
And the opposite. Enter the present date, future date, future value, and interest rate. The calculator shows what it would be worth today. Note that the value changes with changes in the interest rate assumption. For example, $100,000 10 years from now is worth $46,319 today, assuming an 8% rate, but $67,556 assuming a 4% rate.
Answer the question "What $_____ in [year] has the same buying power as $_____ in [year]? This calculator uses the government's official inflation numbers going back to 1913 to estimate buying power for any period you care to plug in.
Enter the starting amount, ending amount, rate of return, and number of years. The calculator shows how much needs to be saved each month to meet the goal.
Municipal bond taxable equivalent yield calculator
Here is the simplest muni bond yield calculator you'll find. Enter the muni yield and the client's tax bracket, and it tells you how much the client must earn in an equivalent taxable investment to equal the muni.
College
College-planning starts with an assumption of the cost of college. If the child is still young and you want to use average costs, go to FinAid's cost projector, which lists the latest average costs for public and private colleges according to the most recent report from the College Board. Plug a number into the calculator along with an inflation rate and the number of years until matriculation, and the calculator shows how much college will cost when the child is ready to attend.
CNN/Money's college cost finder
To plan for a specific college, enter the name of the school. Note the annual cost and use it in the FinAid savings plan designer.
Divorce
Find out how much a parent will owe in child support, depending on the state.