TIME Veterans

Army Says Captains Can Now Retire With Full Benefits

Defense Secretary Chuck Hagel Travels To Mideast
U.S. troops listen to Secretary of Defense Chuck Hagel speak during a visit to Baghdad International Airport on Dec. 9, 2014, in Baghdad Mark Wilson—Getty Images

The officers were initially forced to retire with the benefits associated with sergeants

A change in U.S. Army policy this week means that captains being forced into retirement will be granted the full benefits associated with their ranks, instead of retiring with the benefits granted to sergeants as they initially would have had to.

Lawmakers who advocated for the added benefits said the policy change would give 120 soldiers an additional $1 million each over their lifetimes, the New York Times reported.

Since the officers served as captains for less than the required eight years for full benefits, they had been told they would be given benefits consummate with their previous enlisted rank.

“We fought and sacrificed and did well,” said Captain Tawanna Jamison, who is based at Fort Bragg, N.C. “This change restores honor and treats us right.”

The Army also notified 44 officers less than two years away from reaching the 20-year tenure required to receive full benefits that they would be allowed to keep their jobs instead of being forced to retire.

[NYT]

MONEY Taxes

10 Last-Minute Ways to Save on Your Taxes This Year

woman donating clothes
Clean out your closet by Dec. 31 and cut your tax bill. JGI/Jamie Grill—Getty Images

In between your holiday shopping and New Year's plans, make time for these time-sensitive tax moves.

You know that the window to finish your holiday shopping is closing fast. Well, so is the time you have to cut your 2014 tax bill. Before you pop open the champagne on New Year’s Eve, make sure you’ve ticked off these valuable tax tasks.

1. Be Charitable Now

Individual Americans donate some $250 billion dollars to charity every year, according to the annual Giving USA report, and December is high season for giving.

By donating to charity, you can trim next your tax bill next April. You must itemize to get a write-off, and the organization must be a qualified charity. Check at IRS.gov.

Then you simply need to get a check in the mail by Dec. 31. Or put the gift on a credit card before year-end and pay the bill in January. Make sure you have a receipt, be it a cancelled check or your credit-card statement. But if you donate $250 or more, you must get a written record from the charity.

If you give away clothes or stuff from around the house, you’ll be able to deduct the fair market value, as long as the goods are in good condition or better.

“The end of the year is a great time to donate some items to charity,” says financial planner Trent Porter. “Your good deed will be rewarded with a bigger tax refund and a clean closet”

2. Be Charitable Later

If you’re in search of a big deduction in 2014, but you’re not ready to support a single charity now, here’s a good option. With as little as $5,000, you can set up a donor advised fund with a brokerage of fund company such as Fidelity or Schwab. You get the upfront tax savings, the money is invested, and you can then donate a portion of the fund to the charities of your choice for years to come.

“These accounts make it easy to use appreciated securities and other assets to fund your philanthropy, thus avoiding paying capital gains tax on the appreciation,” says financial planner Eric Lewis.

3. Invest in Education

A year of tuition and fees at even a public college will cost you more than $23,000 today. You need all the tax breaks you can get.

If you’re saving for school in a 529 college savings plan, that money grows tax-free, and withdrawals are tax-free as long as the money goes toward higher ed.

You can’t deduct those contributions on your federal return. But in 34 states and the District of Columbia, you can qualify for at least a partial deduction or a credit on your state tax return, as long as you fund the account by Dec. 31. Look up your state’s rules at savingforcollege.com.

4. Speed Up Deductions

A popular strategy for cutting your tax bill is to move up as many deductible expenses as you can. This is especially smart if your income will be high this year—say you cashed out winning investments or sold property.

One simple way is to donate more to charity. You can also make your January mortgage payment in December, which will give you extra interest to deduct. You could also prepay your property taxes, or send in estimated state and local taxes that you would otherwise pay in January. Or pay next year’s professional dues and subscriptions to trade publications.

Don’t employ this strategy, however, if you expect to be in a higher tax bracket in 2015. In that case, the deductions will be more valuable to you next year.

5. Top Off Retirement Plans

In 2014, you can save $17,500 in a 401(k) plan, or $23,000 if you’re 50 or older. If you haven’t saved that much, see if your employer will let you make an extra lump-sum contribution before Dec. 31. If you can’t, make sure you hit the max next year by raising your contribution rate now. The limit will rise to $18,000 in 2015, or $24,000 if you’re 50 or older.

You have until next April 15 to fund a traditional or Roth IRA for 2014, but the sooner you save the more time you’ll have to get the benefit of tax-deferred growth. What’s more, planning ahead might make for better investment choices. A recent Vanguard study found that last-minute IRA investors are more likely to simply park the money in cash and leave it there.

You can contribute $5,500 dollars to an IRA in 2014, or $6,500 if you’re 50 or older.

If you run your own business and want to save in a solo 401(k), you must open that plan by Dec. 31, though you can still fund it through next April 15.

6. Look for Losers

Nearly six years into this bull market, long-term stock investors are sitting on big gains. Maybe you cashed in a profitable stock or mutual fund this year. Or you trimmed back your winners when you rebalanced your portfolio. Unless you sold within a retirement account, you’ll face a tax bill come April. And the best way to cut that is to offset your investment gains with investment losses.

By pairing gains with losses, you can avoid paying capital gains taxes. If you have more losses than gains, you can use up to $3,000 worth to offset your ordinary income, and then save the rest of the losses for future years.

However, don’t let tax avoidance get in the way of sound investing. You should sell a stock or fund before year-end because it doesn’t fit with your investing strategy, not just because you have a loss.

If you want to buy the investment back, you must wait 31 days. Do so sooner, and the IRS will disallow the write-off (what’s called the “wash sale” rule).

7. Part With Big Winners

If you donate winning stocks, bonds, or mutual funds directly to a charity, you can enjoy two tax breaks. You won’t owe any taxes on your capital gains. And you can deduct the full market value of the investment on your 2014 return.

8. Tap Your IRA

With a tax-deferred plan like an IRA, once you hit age 70 1/2 you must take out some money every year. You have to take your first distribution by April 1 the year after you turn 70 1/2. Then the annual deadline for your required minimum distribution, or RMD, is Dec. 31.

This rule doesn’t apply to Roth IRAs, and if you have a 401(k) plan and you’re still working, you can usually wait until you do retire to start withdrawing money.

The IRS minimum is based on your account balance at the end of last year and your current life expectancy. Your broker or adviser can help you with the calculation, but you’re responsible for making the withdrawal. If you fail to do so, you’ll owe a 50% penalty on the amount you should have withdrawn.

You can also donate your RMD directly to charity and avoid paying income taxes on the withdrawal. In mid-December, Congress extended that rule, which had expired, for at least one more year.

9. Spread the Wealth

Making outright gifts is a smart move tax-wise, says Ann Arbor financial planner Mo Vidwans. Your heirs are less likely to face estate taxes down the road—and you can help out your kids or grandchildren when they need it the most. In 2014, you can give as many people as you want up to $14,000 tax-free. If both you and your spouse both make gifts, that’s $28,000.

If you’re funding 529 plan, you can frontload five years worth of gifts and put $70,000 into a child’s account now.

10. Pay Taxes Now and Never Again

With a traditional individual retirement account, your contributions are tax deductible, but you’ll owe income taxes on your withdrawals. A Roth IRA is the opposite: You invest after-tax money, but your withdrawals are 100% tax free.

Before year-end, you can convert a traditional IRA to a Roth. You’ll have to pay taxes on the conversion in 2014. But then you’ll never owe taxes on that money again.

Converting to a Roth is an especially smart move if your income was down this year and you’re in a low tax bracket. “If you have a low-income year, do a Roth conversion,” says New York City financial planner Annette Clearwaters. “Whenever I see a tax return with negative taxable income I cringe, because it’s such a wasted opportunity.”

And if you later change your mind, you have until the extended tax-filing deadline next October to switch back to a traditional IRA. Clearwaters recommends undoing any conversion that puts you above the 15% federal tax bracket.

Update: This post was updated to reflect Congress’s extension of the rule allowing for direct charitable donations of RMDs.

MONEY IRAs

The Best Way to Tap Your IRA In Retirement

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I am 72 years old and subject to mandatory IRA withdrawals. I don’t need all the money for my expenses. What should I do with the leftover money? Jay Kahn, Vienna, VA.

A: You’re in a fortunate position. While there is a real retirement savings crisis for many Americans, there are also people with individual retirement accounts (IRAs) like you who don’t need to tap their nest egg—at least not yet.

Nearly four out of every 10 U.S. households own an IRA, holding more than $5.7 trillion in these accounts, according to a study by the Investment Company Institute. At Vanguard, 20% of investors with an IRA who take a distribution after age 70 ½ put it into another taxable investment account with the company.

The government forces you to start withdrawing your IRA money when you turn 70½ because the IRS wants to collect the income taxes you’ve deferred on the contributions. You must take your first required minimum distribution (RMD) by April of the year after you turn 70½ and by December 31 for subsequent withdrawals.

But there’s no requirement to spend it, and many people like you want to continue to keep growing your money for the future. In that case you have several options, says Tom Mingone, founder and managing partner of Capital Management Group of New York.

First, look at your overall asset allocation and risk tolerance. Add the money to investments where you are underweight, Mingone advises. “You’ll get the most bang for your buck doing that with mutual funds or an exchange traded fund.“

For wealthier investors who are charitably inclined, Mingone recommends doing a direct rollover to a charity. The tax provision would allow you to avoid paying taxes on your RMD by moving it directly from your IRA to a charity. The tax provision expired last year but Congress has extended the rule through 2014 and President Obama is expected to sign it.

You can also gift the money. Putting it into a 529 plan for your grandchildren’s education allows it to grow tax free for many years. Another option is to establish an irrevocable life insurance trust and use the money to pay the premiums. With such a trust, the insurance proceeds won’t be considered part of your estate so your heirs don’t pay taxes on it. “It’s a tax-free, efficient way to leave more to your family,” Mingone says.

Stay away from immediate annuities though. “It’s not that I don’t believe in them, but when you’re already into your 70s, the risk you’ll outlive your capital is diminished,” says Mingone. You’ll be locking in a chunk of money at today’s low interest rates and there’s a shorter period of time to collect. “It’s not a good tradeoff for guaranteed income,” says Mingone.

Beyond investing the extra cash, consider just spending it. Some retirees are reluctant to spend the money they’ve saved for retirement out of fear of running out later on. With retirements that can last 30 years or more, it’s a legitimate worry. “Believe it or not, some people have a hard time spending it down,” says Mingone. But failure to enjoy your hard-earned savings, especially while you are still young enough and in good health to use it, can be a sad outcome too.

If you’ve met all your other financial goals, have some fun. “There’s something to be said for knocking things off the bucket list and enjoying spending your money,” says Mingone.

Update: This story was changed to reflect the Senate passing a bill to extend the IRS rule allowing the direct rollover of an IRA’s required minimum distribution to a charity through 2014.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com

Read next: How Your Earnings Record Affects Your Social Security

MONEY retirement income

Junk Bond Selloff Is a Warning for Retirees Who Reached for Yield

Risky assets have paid off well the past few years. But tremors in the junk bond market signal time for a gut check.

In July, Federal Reserve Chief Janet Yellen warned of the “stretched” values of junk bonds. Few seemed to care, and among the unconcerned were millions of retirees who had reached for these bonds’ higher yields in order to maintain their lifestyle. Now, a reckoning may be at hand.

Yellen’s mid-summer warning on asset prices was reminiscent of the former Fed chief Alan Greenspan’s “irrational exuberance” comment regarding stock prices in 1996. Few listened then, either. It turns out that the Greenspan warning was way early. But the dotcom collapse hit later with devastating results.

Yellen’s remarks may be timelier. High-risk, high-yield corporate bond prices have been falling amid the strongest selling in 18 months. Since June, investors have pulled $22 billion out of the market and prices have dropped 8%. The pace of the decline has quickened since October.

The junk bond selloff began in the energy sector, where oil prices recently hitting a five-year low set off alarms about the future profits—and ability to make bond payments—of some energy companies. In the past month, the selling has spread throughout the junk-bond universe, as mutual fund managers have had to sell to meet redemptions and as worries about further losses in a possibly stalling global economy have gathered steam.

The broad decline means that junk bond investors have little or no gain to show for the risks they have been taking this year. Investors may have collected generous interest payments, and so not really felt the sting of the selloff. But the value of their bonds has fallen from, say, $1,000 to $920. The risk is that prices fall further and, in a period of global economic weakness, that issuers default on their interest payments.

Retirees have been reaching for yield in junk bonds and other relatively risky assets since the financial crisis, which presumably is partly what prompted Yellen’s warning last summer. It’s hard to place blame with retirees. The 10-year Treasury bond yield fell below 2% for a while and remains deeply depressed by historical standards. By stepping up to the higher risks of junk bonds, retirees could get 5% or more and live like it was 10 years ago. Many also flocked to dividend-paying stocks.

So far, taking these risks has generally worked out. Junk bonds returned 7.44% last year and 15.8% in 2012, according to Barclays, as reported in The Wall Street Journal. Meanwhile, stocks have been on a tear. But the backup in junk bond prices this fall should serve as a warning: Companies that pay a high yield on their bonds—and many that pay a fat stock dividend—do so because they are at greater risk of defaulting or going bust. That’s the downside of reaching for yield, and it doesn’t go away even in a diversified mutual fund.

 

MONEY

6 Simple Projects To Make Your Home More Retirement-Friendly

open kitchen with multi-level island
James Brey—Getty Images

Hoping to stay in your house for the long haul? These manageable changes will make your place more comfortable now—and for years to come.

Houses—especially prewar houses—can be tough places to navigate as you get older. Steep stairs, deep tubs, and narrow doorways, once just petty annoyances, can become serious obstacles.

Remodeling your home to remove those impediments is a major undertaking, likely to cost tens of thousands of dollars, says Louis Tenenbaum, an independent living strategist based in Potomac, Md. Plus, by the time these changes become a necessity, you probably won’t want to get involved in an expensive and inconvenient construction project.

A smarter strategy? Tackle these jobs early on, when you’re already planning a renovation. Whether you’re updating a fixer-upper, expanding a starter home for a growing family, or remodeling for your empty-nest years, making a few simple design choices now will help you live comfortably in your home for decades to come. Even better: Most will add little or nothing to the cost of your current project.

Making your home more retirement-friendly doesn’t have to mean sacrificing good looks. “We’re not talking about grab bars in the shower or a ramp by the front door,” says Columbus, Ohio, contractor Bill Owens, a National Association of Home Builders’ expert in so-called universal design. “The idea of universal design is that good design is people-centered and works for all ages and body types,” he says. Sought-after features like spacious bathrooms, farmhouse-table style kitchen islands, and freezer-on-the-bottom refrigerators are all examples of universal design.

Make it clear to your project designer and contractor that universal design is a priority whenever you renovate. Doing so will not only help you age-in-place gracefully, but will also increase the value of your home by making it more attractive and comfortable, says home designer and builder Mark Mackmiller, of Eden Prairie, Minn.

Ready to get started? Here are six changes to consider, as well as an estimate of what they’ll add to the total cost of your renovation project.

Open Floorplans

Removing walls between the living and dining rooms, kitchen, family room, and/or entry halls makes a house feel bigger, more modern, and more comfortable—and makes the space easier to negotiate in old age.

Cost: $3,000 to $5,000 per removed wall

Curb-Free Showers

Visit any high-end resort or flip through a glossy design magazine and you’ll notice that every shower has glass doors that go all the way to the floor, with no lip to step over. Aside from being a sleek and sophisticated look, this eliminates a major tripping hazard.

Cost: $500 to $1,000 for lowered plumbing and shower floor

Multiple Height Counters

When you redo the kitchen, include some counters at standard height (36 inches), some at breakfast bar height (42 inches), and some at table height (30 inches) with knee space for sitting. Having a range of counters will give you more options for prepping or cooking while standing or seated, all without requiring that you to bend over.

Cost: Nothing more than what you’re already spending on the renovation

Wide Doorways

Anytime you’re reconfiguring doorways, make sure the new openings are at least 32 inches wide. This makes your home feel more spacious, and will allow for wheelchair access should you ever need it later.

Cost: $50 to $400 per door

Lever-Style Doorknobs

Just as lever-style faucets have become the norm for kitchens and showers because they’re attractive and easy to operate, lever doorknobs are more ergonomic than standard round versions. They’re easier to grab and manipulate if you’re carrying a load of groceries or laundry—or if you’re aging in place.

Cost: No additional cost.

High Outlets

Left to their own devices, most electricians will install new outlets at 12 to 18 inches off the floor. But that requires bending over every time you need to plug in the vacuum. Ask for outlets 24 inches high instead, and you’ll make your house easier to use now, when you get older, and if you’re ever fighting a bad back.

Cost: No added cost.

 

MONEY retirement income

Why Workers Undervalue Traditional Pension Plans

Gold egg in nest in dark
Simon Katzer—Getty Images

Lifetime income is the hottest button in the retirement industry. So why do workers prefer a 401(k) to a traditional pension?

Despite many drawbacks, the 401(k) plan is our most prized employee benefit other than health care, new research shows. More than half of workers value this savings plan even above a traditional pension that guarantees income for life.

Some 61% of workers with at least $10,000 in investments say that, after health care, an employer-sponsored savings plan is their most important benefit, according to a Wells Fargo/Gallup Investor poll. This is followed by 23% of workers naming paid time off, 5% naming life insurance, and 4% naming stock options. Some 52% say they prefer a 401(k) plan to a traditional pension.

These findings come as new flaws in our 401(k)-based retirement system surface on a regular basis. Plans are still riddled with expenses and hidden fees, though in general expenses have been going down. Too many workers don’t contribute enough and lose out by borrowing from their plans or taking early distributions. Most people don’t know how to make a lump sum last through 20 or 30 years of retirement. And the common rule of withdrawing 4% a year is an imperfect strategy.

The biggest flaw of all may be that most 401(k) plans do not provide a guaranteed lifetime income stream. This issue has gotten loads of attention since the financial crisis, which laid waste to the dreams of millions of folks that had planned to retire at just the wrong moment. Many were forced to sell shares when the market was hitting bottom and suffered permanent, devastating losses.

Policymakers are now feverishly looking for seamless and cost-effective ways for retirees to convert part of their 401(k) plan to an insurance product like an immediate annuity, which would provide guaranteed lifetime income in addition to Social Security and give retirees a stable base to meet monthly expenses for as long as they live. Such a conversion feature would fill the income hole left by employers that have been all but eliminating traditional pensions since the 1980s.

With growing acknowledgement that lifetime income is critical, and largely missing from most workers’ plans, it seems odd that so many workers would value a 401(k) over a traditional pension. This may be because guaranteed income doesn’t seem so important while you are still at work or, as has lately been the case, the stock market is rising at a rapid pace. It may also be that the 401(k) is the only savings plan many young workers have ever known, and they value having control over their assets.

Seven in 10 workers have access to a 401(k) plan and 96% of those contribute regularly, the poll found. Some 86% enjoy an employer match and 81% say the match is very important in helping to save for retirement. The 401(k) is now so ingrained that 77% in the poll favor automatic enrollment and 66% favor automatic escalation of contributions. Four in 10 even want their employer to make age-appropriate investments for them, which speaks to the soaring popularity of automatically adjusting target-date mutual funds.

Read next: How Your Earnings Record Affects Your Social Security

MONEY Retirement

How to Make the Tricky Switch to Nonprofit Work

Coming from the corporate world might not be seen as a plus.

When I was researching my book, Unretirement, I was struck by how many boomers wanted to connect their passion to a paycheck by doing nonprofit work. People with long careers in the private sector often told me that they were eager to do things like help tackle homelessness or address recidivism or educate at-risk children.

The late historian Daniel Boorstin called nonprofits “monuments to community.” And it’s little wonder that growing numbers of boomers are acting on their desire to give back through this incredibly diverse sector, rich with opportunities. Nonprofits range from huge institutions with the trappings of big business to mom-and-pops with a cadre of dedicated employees and volunteers.

Making the leap from the for-profit world to the nonprofit one isn’t always easy, though.

(MORE: Mistakes to Avoid If You Want a Nonprofit Job)

How Not to Do It

When I gave a talk last August at Verrado, a multigenerational planned community in Arizona, a man in the audience had everyone in stitches relaying his tale of self-inflicted woe as he tried making the switch.

When he retired from a corporate career in IT management, he said, he hoped to take his skills to a nonprofit and make a difference. But after getting a job at one and loudly telling his new colleagues they were doing IT all wrong, he was soon thanked for his insights and shown the door. The same thing happened at another nonprofit. These days, he told me, he’s driving a car to make some money while rethinking his approach toward working at a nonprofit — still his goal.

When I relayed his story to Kate Barr, executive director of the Nonprofits Assistance Fund — a Minneapolis-based group that offers capital and expertise to Minnesota nonprofits — she didn’t find it surprising. “It’s a myth that nonprofits don’t know what they’re doing,” says Barr. “Most of them do.”

Start On a Board

Barr, who made the transition from the corporate world with aplomb, has some smart advice for midlifers who’d like to do it. She started her career as a dancer at small dance companies, pirouetted into banking and after 22 years of that (eventually becoming a senior vice president), landed her Nonprofits Assistance Fund job in 2000.

When professionals ask Barr how to make a similar shift, her first question to them is: “Do you serve on any nonprofit boards?” If not, she says, get on some before jumping careers. Board membership, Barr says, offers an opportunity to understand the dynamics of nonprofits.

If you think joining a board is just for the uber-rich who can write big checks, Barr says you’re mistaken. While some nonprofit boards recruit solely from the wealthy and the well-connected (think big-city orchestras and major nonprofit hospitals), many of the nation’s roughly 1.44 million nonprofits don’t (think local food banks and small arts groups).

(MORE: 7 Top Websites for Nonprofit Jobs)

As a board member, you’ll be expected to make an annual contribution to the cause. But often, the sums are relatively small. “There are lots of boards to choose from,” Barr says.

Volunteer to Be a Volunteer

Another way in, says Charles McLimans, “volunteer your services” at a nonprofit. “Ask, ‘what do you need me to do?,’” he advises. Like Barr, McLimans, 49, speaks from experience.

He began his career in the corporate sector, including work at REFCO, the commodities trading firm. In 2006, when he moved to Naperville, Ill., to be closer to his family, his sister suggested he volunteer at Loaves and Fishes, a food pantry. In 2008, he became its executive director and only full-time employee.

He’ll soon move to Milwaukee, Wisc. to be President and Chief Executive of Feeding America, Eastern Wisconsin, a 45-person employee hunger-relief organization. “It’s a great opportunity,” says McLimans.

Crosby Kemper III, Executive Director of the Kansas City Public Library, has a few other questions to think deeply about before making the leap to nonprofits. “I’d say the first thing you have to do is ask yourself, ‘What do you want to do with your life? What gifts do you have to give to the world? What do you want to do with the last part of your life?’”

(MORE: Find a Nonprofit Job Matched to Your Passions)

Kemper asked himself those questions before taking the library position in 2005.

Like Barr, Kemper had been a long-time banker (although he took some major career breaks, including a year teaching English in China). He became Chairman and Chief Executive of UMB Financial in 2000, based in Kansas City, Mo., and retired five years later. When the possibility of the library job came up, he talked it over with close friends and met with patrons of the library. Although he enjoyed his business career, Kemper says, “ultimately it didn’t fulfill everything I wanted to do. The life of the mind and the civic role are important, too.”

How to Do a Nonprofit Job Search

No matter what mission or cause attracts you, some of the keys to finding rewarding work at a nonprofit are the same as with any thoughtful job search: Figuring out what do you really want to do, understanding your skillset, knowing what you have to offer and tapping into your network for job leads.

What’s different about the job search at a nonprofit is the opportunity to experiment — to test-drive the combination of your talents and an organization’s needs through volunteering. By learning about a group from the bottom rung of its career ladder, you can understand the intricacies of the nonprofit without romanticizing working there.

After all, even with the most noble vision, every nonprofit is like any other business, with plenty of shortcomings and frustrations. But through volunteering, you’ll live with them and can then decide whether to try to convert your free labor into a part-time or full-time paid position that’ll add meaning to your life.

More from Next Avenue:

Why Professional Men Over 60 Keep Working
The Good News About Women Working After 60
What Older Workers Want, But Aren’t Getting

MONEY retirement planning

Retirement Calculators Are Wrong—But You Need One Anyway

child's hand moving an abacus
Cliff Parnell—Getty Images

To get the most from retirement calculators, it helps to understand their limitations.

Everyone knows it’s impossible to predict the future, but we seem to forget that truth when it comes to our personal finances. We save too little and hope there will be no emergency expenses. We look to financial advisers or media pundits to pick the most profitable stocks. And we think there is some magic formula or equation that will compute exactly when we can afford to retire.

But there just isn’t a precise answer to the question of whether or not you have enough money to retire. And that’s because retirement calculators aren’t evaluating a simple mathematical equation. Rather, they’re attempting to model the future. And that’s a very tough assignment.

You may have perfect knowledge of your personal situation: how much you’ll make, how much you’ll need to spend, how long your good health will last. But the world won’t stand still for you. How much will stocks and bonds return in the years ahead? What will inflation run? How will tax rates change? No person or tool can predict the trajectory of the economy, the markets, and government policy decades into the future.

When I used a simple retirement scenario to compare prominent free retirement calculators, I found a difference of nearly a factor of two in the final portfolio size between the most pessimistic and optimistic outcomes. That’s right, the answers varied by nearly 100%!

Given slight changes in input, even the same calculator can report vastly different results, ranging from going broke to dying a multimillionaire. So we can’t approach retirement calculators with a “pass/fail” mindset. All a retirement calculator really provides is an opinion as to how long your assets would last, given current conditions and a certain set of guesses about the future.

Can you get more accuracy by choosing a “better” calculator? It depends on what you need. A more powerful calculator can guide you on tax moves, claiming Social Security, and sequencing retirement withdrawals. But don’t bother searching for a calculator that is somehow inherently better at predicting your future wealth. The major variables of market returns, inflation rate, and life expectancy will always preclude a perfect answer to that question.

Still, a retirement calculator can be invaluable for making one of the most important decisions of your life. So even if it’s impossible to find the one that will perfectly predict the future, how should you go about choosing one that’s good enough?

For starters, understand the calculator’s pedigree: Where is it coming from and why? Who is the individual or company behind it? Will they be available to support their tool now, and later? Beware calculators geared to computing your insurance or investment needs if the people behind it are standing ready to sell you those same products. You can also sidestep tools designed for professional advisers or researchers; there are plenty of other easy-to-use general-purpose retirement calculators available.

Next, consider the “fidelity” of the calculator, or how closely it can simulate reality. This will impact how much data it collects from you and how much time you need to spend on inputs. If you’re younger and just need a rough check on whether you’re saving enough, a quick, easy-to-use, low-fidelity calculator will be adequate. But if you’re older and want to analyze specific financial events in your future, or fine-tune a tax, income, or withdrawal strategy, you’ll need to choose a higher-fidelity calculator and invest more of your time.

The single most important variable in a retirement calculation is usually the real rate of return: how much your investments will grow above inflation. Broadly speaking, there are three methods for modeling return rates: average return, random Monte Carlo, and historical sequence. Experts argue over which is best, but most of the rest of us aren’t in a position to choose sides. My suggestion: Pick a calculator, or calculators, that cover all three approaches, then compare the results for yourself.

Fortunately, cost doesn’t need to be a factor when you’re selecting a retirement calculator. There are free offerings in all the major categories. But you may be able to winnow the field by platform. The easiest and friendliest calculators are generally web-based. But if you aren’t comfortable with sending your financial data across the Internet, there are good options that will run locally on your desktop, laptop, or tablet instead.

Finally, when you’re ready to choose a retirement calculator, check out my list of The Best Retirement Calculators. Out of a field of more than 75 tools, I’ve hand-picked solid choices in each category. You can sort and search by most of the parameters I’ve discussed above, plus other features. And there are links to each of the calculators, so you can try them out personally.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com.

For more help calculating your needs in retirement:
The One Retirement Question You Must Get Right
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3 Predictions for 2015 You’re Sure to Hear—and Why You Should Ignore Them

Crystal ball predictions
Len DeLessio—Getty Images

Now's the time when market pundits pull out their crystal balls for the year ahead. Gaze if you must, but don't lose sight of your long-term goals.

Tis the season for…predictions! As the year draws to a close, pundits, journalists, and other gazers into the future will be spouting prognostications of what lies ahead for the economy and the financial markets. Should you act on them?

The short answer is no.

Although there are exceptions, most year-ahead forecasts and predictions are, well, the polite word is hogwash. But since now is the time when all upstanding financial journalists are expected to tell readers what’s in store for next year, I’ll oblige with my tongue-somewhat-in-cheek predictions of three predictions you’re likely to hear, if you haven’t already. I’ll then explain why you shouldn’t factor these or any other prognostications into your retirement planning, and recommend what you should do instead.

Prediction #1: Dozens of surveys will sound the alarm that Americans are headed for a retirement castastrophe, or worse. You know the type of surveys I’m talking about, the ones typically issued by financial services companies warning that Americans are woefully unprepared for post-career life and/or have no idea of the right way to plan for retirement. They’ve become a staple of the retirement-planning landscape, designed less to inform than grab headlines and send you scurrying into the arms of a financial adviser who, for a price, will help you avert the coming disaster.

Don’t waste your time reading this pap. Spend it instead on practical steps to improve your retirement prospects, starting with a year-end retirement-planning check-up. You can do that in about 15 minutes or so by plugging info about your income, savings, and investments into this retirement income calculator. You’ll immediately get an estimate of your chances of being able to maintain your standard of living if you continue along your current path. If the odds look uncomfortably slim, you can easily see how saving more, investing differently, or putting off retirement a few years might improve them.

Prediction #2: Wall Street sages will predict that stock prices will climb to new highs in 2015…and other market seers will assure us that prices will fall. Such predictions are already coming in. For example, go to Research Magazine‘s December issue and you’ll find First Pacific Advisors’ Bob Rodriguez warning that the market could easily be 20% or 30% lower next year and AFAM Capital’s John Buckingham saying stocks will be higher, perhaps 10% to 12%, if not more. Who’ll be right? Who knows? Maybe the market will collapse and rebound sharply and they’ll both be right. Or perhaps it will remain flat and they’ll both be wrong.

The point is that such forecasts should not figure into your retirement investing strategy. Rather, you should create a mix of stocks and bonds based on your risk tolerance and goals and, aside from periodic rebalancing, largely stick to it regardless of what the market is doing or what investment advisers are saying it will do.

Prediction #3: The bond market will flop. No, seriously, this time for real. Pundits and investment pros alike have been predicting a bond-market crash since at least 2010. And, on the face of it, the gloomy outlook makes sense. Yields have been extraordinarily low for years and remain depressed, with 10-year Treasurys recently yielding just 2.3%. When yields rise, bond prices will fall.

The problem is we don’t know when yields will climb, nor how high. Past predictions of bond bubble trouble haven’t panned out very well. With the exception of last year, when the broad bond market lost 2%, bonds have posted 4%-or-better gains every calendar year since 2009. As of early December, the broad bond market was up nearly 6% year to date. If recent strong job gains kick the economy into overdrive, we could see higher rates next year. But as a recent Vanguard analysis shows, despite their low yields, bonds remain an effective way to diversify and hedge against stock-market risk.

So by all means check out what the various seers, sages, and soothsayers have to say about the year ahead. You might glean the stray insight or at least get a few laughs. But don’t take them too seriously—or, most important, let them divert you from your long-term plan.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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