What does the calculator do? It generates average and high-end estimates of the dollar value to hold on reserve for potential future expenses during retirement. These are potentially large expenses not included in your normal budget. In addition, the calculator recommends how to invest your reserve funds. All the calculator's estimates and recommendations take into account the life expectancy for your age and gender.
What potential expenses will the calculator estimate? Three types of expenses are covered: health care other than insurance premiums, long-term care services, and unusual housing expenses such as major home repairs.
How does the calculator estimate these unknowable costs? It uses data from various public sources on your expected longevity; on the expenditures of people over 65 years of age for medical costs, long-term care services, and household maintenance; and on home prices. If you own a home, condo, or coop, the calculator uses your home's value as input for the estimates. Optionally, the calculator allows you to personalize some inputs, such as long-term care in your area, if you wish.
What if you rent your home or apartment? In that case, the calculator will omit housing maintenance from your estimated reserve fund, since rent is part of your normal budget.
How does the calculator handle long-term care? The average estimate is based on government data regarding the amount actually paid for long-term care by people age 65 and older. The high-end estimate assumes two years of a private room in a nursing home, at rates based on a recent, nationwide survey (or a rate you specify).
- You can force the calculator to omit uninsured medical costs from the estimates by entering 0 in question 3, which asks about such costs. This will eliminate them from the high-end estimate.
- Similarly, you can force the calculator to omit long-term care from the high-end estimate by entering 0 in question 4, which asks about your preferred expense-level for long-term care.
- If you own a home, condo, or coop, but want to exclude major housing expenses from the estimate, answer "No" to question 6, which asks whether you are an owner or renter.
- Try running the calculator with different inputs, to see how your need for reserve funds would be impacted.