Letters: Do retirement calculators work?

A U.S. Postal Service letter carrier prepares to place letters in a mailbox.

Guest host and L.A. Times consumer columnist David Lazarus tackles your retirement-related questions this week.

Molly from Washington, D.C. called to ask about her parents' retirement plans.  In order for Molly's folks to bolster their retirement fund, they are trying to buy a two-family rental property. Her parents have asked her and her husband to co-sign the mortgage because, on paper, their debt-to-income ratio has maxed out. Molly and her husband don't have to put in any money and wouldn't take any of the rental income. What implications might co-signing have?

"Co-singing is a little bit of a misnomer. What you're doing is co-borrowing. Keep that in mind because all of the responsibilities and accountability that comes with the loan also rests with the co-signer. You need to be aware of that because if, god-forbid, something happens to your parents, your name is now on the bottom line. And the bank will come after you for this. That's something very important to keep in mind. A lot of financial experts say you should be very wary of co-signing a loan, even with a loved one, because of this. It's going to get you on the hook as well. There are some other implications. For example, if you co-sign a loan for your parents, that's going to end up on your credit report. If your parents ever miss a payment, that will affect your credit file. So you just don't want to be connected in that way," says Lazarus.

Mark from Ashburn, Va., was recently on CNN's website using their retirement savings calculator to see how much he and his wife would need for retirement. After putting in the numbers, it said he would need $3.1 million by the time he retires. Is he really going to need that much to retire and should he bother with these calculators?

"I've done the same thing. I've run these numbers. I also need millions of dollars to retire," says Lazarus. "When it comes to retirement, you're very smart, first of all, that you're just anticipating some of the costs that are coming down the freeway at you. These retirement calculators are a good thing if for no other reason than they just get you thinking about some of the stuff you should be prepared for. Generally speaking, a lot of experts say when you're in your sunset years, you should need about roughly 70 percent of your current income on a monthly or an annually basis to cover your nut. That's kind of a funky way of looking at it because your expenses might change. You might pay off your house, for example. You might not have kids who have any requirements any more. So the whole 70 percent of income thing should be taken with a grain of salt. When you run a calculator like you did, that shows you're going to need millions of dollars that you're not going to have, that's probably what it is reflecting."

For a more accurate read on retirement, Lazarus recommends calculators that consider expenses as well.  "If you go the Motley Fool website, they have a retirement calculator that looks at just that -- expenses. That will help you get a sense of what you're really going to need in your pocket when you get into your dotage," he adds.

For more advice, including suggestions on how to diversify your investments, click play on the audio player above.

Here are the links David mentioned:

About the author

David Lazarus is an American business and consumer columnist for the Los Angeles Times.

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