I was watching TV this weekend and kept seeing commercials about ING’s Your Number, which is an online calculator that supposedly helps you plan for retirement by telling you how much you need to save. Here’s one of them if you haven’t heard of them before:
After trying it out and finding out my 7-digit number, I wanted to see what was “under the hood”. Monte carlo simulations? Spits out random number to mess with your head? Maybe my Google-Fu is weak, but I couldn’t find anything except this Your Number worksheet [PDF] from ING dated 2009. The final numbers don’t match up, but it does provide some insight into how the current calculator works. Using this information and trying lots of permutations, I tried to backtrack how each question affects the final output.
Factors and Assumptions
Current age. This factor appears to be used solely to calculate how many years you have left until retirement. Since the ING Your Number is the amount of money you need at the time of retirement, it increases every year with inflation. This is an important fact to note, as needing $1 million today would be the same as needing $2 million 30 years from now due to inflation alone. (Inflation is assumed to be roughly 3% annually.)
Marital status. The calculator says “We’re not trying to pry into your personal life, but whether or not your married has an impact on your number.” Nosy or not, it actually doesn’t seem to matter. I tried all kinds of inputs, but I couldn’t find any that changed based on being married or not. Let me know if I missed something here.
Current household income. At first glance, you’d think your current household income wouldn’t affect Your Number necessarily, since it later on asks for the actual income required during retirement. I noticed that making slight changes in your current income doesn’t affect Your Number at all. However, large changes do – it appears that this number is used to estimate future social security benefits. If your current income is really low, then your future benefits will also be low, which increases Your Number.
Age at retirement. This factor is used twice – once along with your current age to find how long you have until retirement, and again with your death age to find years in retirement. The more years you plan to spend in retirement, the greater Your Number will need to be in order to maintain a margin of safety.
Annual income required during retirement. A recommended amount is 80% of your pre-retirement income, but I hate that rule-of-thumb. Instead, this is probably the hardest part of the calculator because it requires the most personal and in-depth thought. Is your house paid off and are you going to stay in it? How much of your current income goes towards work expenses? What activities do you plan to do in retirement?
Provide income through what age? As noted above, this “death age” is used to calculate the amount of years you’ll spend in retirement. I kind of wish they just assumed 100 or something for this, it seems a bit morbid to guess when you’ll die.
In the end, Your Number is essentially your annual retirement income multiplied by a factor ranging from 5 to 30, depending on how long your retirement horizon is. It could have just told people to multiply by 25 and be just as accurate (or inaccurate) . As you might expect with any calculator that tries to help plan your retirement by asking five questions, Your Number is mostly a marketing gimmick designed to connect you with ING-affiliated financial advisors and insurance salesmen. That doesn’t mean you still don’t want to try it, though, right?