Congratulations for getting serious about your retirement plans! Life goes by quick and there is no rewind button. Therefore, it is imperative that everybody plans for their retirement as thoroughly as possible. Let’s review the best retirement planning tool today.
The best retirement planning tool is one that will significantly increase your chances of living a healthy, happy, and retired life.
After 13 years of work, I retired at the age of 34 by aggressively saving over 50% of my income every single year. It was a lot of sacrifice, but the freedom to do whatever you want is priceless! I then proceeded to invest the proceeds mostly in real estate and dividend income stocks to give me a passive income stream that covers all my family’s living expenses.
I used to manage my wealth with a simple Excel spreadsheet. But thanks to technology, I’ve been using Personal Capital’s free retirement planning tools since 2011 to grow my net worth instead. With their sophisticated free software, I’ve been able to optimize my wealth and set my finances almost on autopilot. It feels like a great burden has been lifted off my shoulders.
I firmly believe Personal Capital is the best retirement planning tool around. The company was built from the ground up with financial security and retirement in mind.
Personal Capital was founded in 2009 by ex-Paypal and Intuit CEO Bill Harris. They are based right here in the San Francisco Bay Area. I have personal spend spend hundreds of hours meeting with senior management. Further, I consulted with the firm from nascent startup to an established personal finance stalwart.
Besides using their free retirement planning tools, here are more reasons why you should sign up with Personal Capital’s free financial software.
Best Free Retirement Planning Tool
Here is why Personal Capital is the best retirement planning tool.
1) Simplicity And Less Stress. Before Personal Capital, I had to log into eight different financial institutions to track over 30 different financial accounts. My finances were a mess, and I’m sure your finances could use some organization as well.
Now I can just log into Personal Capital to see how everything is doing in one place. It’s important to have a holistic view of your overall financial health so you know where to allocate resources.
2) Net Worth Overview. The best retirement planning tool is great at giving you an overall snap shot of your net worth. Gone are the days where you have to use an Excel spreadsheet to manually update every single asset and liability line item to calculate your net worth. Personal Capital updates your net worth automatically as soon as you log in because all your accounts are linked. They provide a pie chart of your assets as well as gives you a historical chart of your net worth progression.
If you cannot find an account in their database, you can simply add it yourself. Personal Capital will also conveniently e-mail you a weekly snap shot of your latest net worth along with how the markets did. You’ll also get upcoming bills, latest insightful blog posts and accounts that need your attention. Below is a sample headline snapshot.
3) Tracks Your Cash Flow. Budgeting is personal finance 101. By tracking your income and your spending like a hawk, you will be able to save a lot more money than if you simply tried to guess everything. Think about all the times you withdrew cash from the ATM machine. A couple days later, you had no idea where all the money went. Aggregating all your accounts allows you to see where all your money is going. In the example above, this entrepreneur brought in over $38,000 in income and spent only $3,096. Now that’s great cash flow!
4) Helps You Balance Risk. The best retirement planning tool helps you balance risk in your various portfolios. With so many accounts, it’s often hard to see exactly what’s going where. For example, so many people were too overweight stocks before the financial crash in 2009. With Personal Capital, you can easily see where the imbalances are in your net worth. This way, you can make smart adjustments.
Now that the stock market has rebounded aggressively, investors are probably too overweight equities and way underweight bonds once again. The Investment Checkup tool analyzes your portfolio’s holdings based on size, style, and sector. Personal Capital excels for those who have assets in the stock market. Personally, I like to maintain a 35%, 35%, 30% split between stocks, real estate, and CDs/bonds.
5) Helps Reduce Fees. One of my favorite tools Personal Capital provides is their Portfolio Fee Analyzer. I ran my 401K through their fee analyzer. Then, I discovered that I am paying over $1,750 a year in management fees. I had no idea that my Fidelity Large Cap Growth fund cost $1,200 a year due to a 0.74% expense ratio. This was high compared to sub 0.3% for my Vanguard Funds. As a result, I found a similar Large Cap index fund instead and am now saving $1,000 a year.
Without Personal Capital, I would have spent over $87,000 in excessive fees over the next 20 years. Take a look at my example below. Portfolio fees are a serious problem which will rob you of your retirement wealth if you are not careful. Don’t let ignorance rob you of your financial well being.
6) Shows Your Portfolio’s Investment Efficiency. The best retirement planning tool makes your portfolio better from a risk-adjusted basis. Today, investing in a 60/40 portfolio makes more sense as bonds yields have risen.
Based on your risk tolerance and investment objectives questionnaire, Personal Capital will give you an idea of where your current allocation is on the Efficient Frontier Curve. The Efficient Frontier Curve is the best returns for a certain level of risk. You want to be on the curve and not above or below.
7) Recommends Specific Dollar Amounts To Invest. Financial advice is useless if there is no actionable advice. Personal Capital will recommend the specific dollar amounts to invest or reinvest in each asset class. This will help you get you to an optimal asset allocation. In this example below, the investor is too heavily weighted in cash.
In order to get to his recommended target allocation the investor needs to increase stock holdings by roughly $200,000. Then increase bond holdings by roughly $100,000. The fun part is figuring out which index funds to invest in each category. All investment related charts and analysis can be found in the Investing tab. The best retirement planning tool makes you take action.
8) The Best Retirement Planning Calculator. Personal Capital has the best retirement calculator on the market. It uses real data and Monte Carlo simulations to come up with the most realistic financial scenarios for your future. Other calculators simply ask you to guess input values to then come up with your financial future.
The problem with this method is that we often underestimate how much we are saving and spending. You can input different life events such as a wedding or home purchase in your cash flow statement. Then recalculate your financial future to see how you’ll do. Everybody should give it a try.
Best Retirement Planning Tool For Sure
Retirement life is wonderful, especially if you don’t have to really worry about money. Personal Capital helps you get there and it’s free to use. It takes less than a minute to sign up!
I spent the past 13 years meticulously tracking my own finances to achieve financial freedom. If I discovered Personal Capital earlier, I think I would have reached freedom even sooner!
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. They now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009. It is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.