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RETIREMENT CALCULATIONS
I'm looking for the best retirement calculator on the net. The ones I've found answer most of the questions based on today's situation and expectations. I'm hoping there's one that can help tell me, for example, what percent of my income I should save over time in order to achieve a financial goal. Fourteen thousand a year into a 401k today is next to impossible, but 5 to 7 years from now will not be once I get a few raises. But will that get me to Easy Street?
Scott H. -- Richmond, Va.

Retirement calculators will only get you so far: all they can do is crunch the numbers you put into them. Most of those numbers are going to be assumptions -- about what you'll need and how well your investments will perform -- that are really unknowable. The younger you get started on a retirement plan, the easier it is to make it work. But the longer your time horizon until retirement, the less reliable your assumptions will be.

But let's not get ahead of ourselves here: you're just getting started. At this point, it's okay if the numbers you plug into the calculator are just guesses. You'll no doubt go back and tinker with your plan many times before you're through. The most important step is the one you've made: getting started. So here are three things to think about as you search for that "perfect calculator:"

Your goal: This is probably the hardest of all. What, exactly, does "Easy Street" mean for you? A McMansion in the suburbs with three cars in the garage? A house in the woods and a trip someplace warm every year? Any chance you'll be putting kids through college? The best you can do is make up a fantasy retirement budget, decide when you plan to quit working, come up with a guess for how much income you'll need, and then work backwards to the present. You may have to adjust that goal downward. Or you may have to save harder. The purpose of the exercise is to see how these two numbers are linked.

Investment performance: There is, in fact, no way to calculate how well your investments will perform. But coming up with a target number helps you check your plan periodically to see if it's working. Forecasting your return also forces you to answer one of the most basic questions of investing: how much risk are your comfortable with? Riskier investments sometimes (but by no means always) bring higher returns. You're also able to take more risks if you've got more time: a 30- or 40-year horizon will likely smooth out the ups and downs of your investments. If you plan to retire in 5 years, taking on higher risk may not make as much sense.

Inflation: This is the ultimate wild card. And it's a question even Mr. Greenspan won't be able to help you with: there are just too many unpredictable forces out there. Inflation also hits your retirement plan two ways: 1) you'll need more money to pay higher prices when you retire and 2) it erodes the value of your investments along the way. And if you're planning on retiring in 30, 40 or 50 years, the cumulative impact can be enormous. Again, give it your best guess and expect to adjust your plan it the real rate of inflation differs from your forecast.

All of these numbers, along with your income and financial responsibilities, will continue to change throughout your lifetime. So you’ll need to continue to update them to keep your retirement plan on track. But you've got to start somewhere. Make your best guesses now, and then check your plan at least once a year.

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