Wednesday, February 13, 2013

Broken Retirement Calculator

The Globe and Mail offers a number of free retirement and investing calculators including their pay yourself first calculator. I tried poking around with it but couldn’t get it to spit out numbers that matched my own calculations. I’m convinced now that it is broken.

This calculator takes in 5 numbers:

– Annual salary
– Salary increases
– Pay yourself percentage each year
– Number of years of saving
– Rate of return

Then the calculator spits out

– Total earnings
– Retirement fund

To narrow down the problem, I tried simple scenarios with 0% salary increases, a 0% rate of return, and a $100,000 income. I set the saving rate to 12% ($1000 per month). Sticking in just 1 year of saving, I get the expected result:

– $100,000 in total earnings
– $12,000 retirement fund

But when I go to 2 years of saving, I get

– $200,000 in total earnings
– $23,000 retirement fund

Exactly 1 month of savings is missing. Going to 3 years of saving, the retirement fund goes to $34,000. Now 2 months of savings are missing. This pattern continues. After 20 years, 19 months of savings are missing.

This seems like a pretty simple mistake that should have been caught. I haven’t investigated whether this calculator makes any other types of mistakes. I sure hope there haven’t been too many people relying on this calculator.

8 comments:

  1. Tithing or income tax? Some seriously bad quality control.

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  2. Around 2000 I was testing my mortgage calculator and found one of the big 5 banks using American calculations for their website mortgage calculator (i.e. compounded monthly instead of semi-annually).

    I sent them an email telling them specifically where the calculator was wrong. They responded with the helpful suggestion that I could go into a branch if I needed an amortization schedule. So yeah, banks don't always get their calculators right.

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  3. @Gene: Before I saw the patter and created the examples that made it clear, I came up with several ideas including taxes, inflation, reduced return due to a shift to fixed income, and a few other things. But it seems to be a mistake rather than anything deliberate.

    @Glenn: I find it funny that large companies can't get this right. I created a version of this calculator in Excel in 5 minutes.

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  4. Gives you great faith! I'll be interested to see if anyone from the Globe ever posts an explanation here for why it's doing that. I suspect it's inflation.

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    Replies
    1. @Bet Crooks: I'm convinced that the problem is a simple error. The Globe did thank me for pointing out the problem. I'm hoping the let me know when it's fixed.

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    2. Well it's encouraging they at least are trying to fix it!

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  5. If you realize mistakes early, it mean you are heading towards solution. All good now!

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    Replies
    1. @Retirement Options: I'm not sure what you think is good now. The calculator is still broken.

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