Does The Dave Ramsey/Chris Hogan Retirement Calculator Work?

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R:IQ's webpage on Chris Hogan's website.

 

Retirement calculators have long been a stable of internet personal finance websites.

And Dave Ramsey’s Retirement Calculators are perhaps the most well-known and widely-used among them.

But do they work? And are they helpful?

Well, the Ramsey Solutions Company actually has several retirement calculators, but in this article we’ll break down the most famous of them, which is the R:IQ calculator affiliated with author Chris Hogan.

What The Is R:IQ Retirement Calculator?

R:IQ is a Dave Ramsey-backed retirement calculator intended to help you come up with a savings & investment strategy so that you can afford your desired lifestyle when retired. R:IQ’s calculations are based on a quiz with around a dozen simple questions.

How to use the R:IQ retirement calculator

To get started with R:IQ, visit this link, enter your email address, and click “Get My R:IQ”. Note that you may start receiving promotional emails if you enter your email – if you don’t want this, you should be able to opt out by following the “Unsubscribe” directions in the email (typically located on the very bottom of the message).

Anyway, once the quiz starts, you’ll be asked to choose a lifestyle you’d like to pursue in retirement. From what we can tell, this choice doesn’t really affect calculations, but we suppose it could help you adjust your goals.

As an example, let’s choose relaxation as a goal.

First up, you'll need to choose your "retirement dream".

You’ll then be asked to type in your annual income. Let’s enter $150,000 just for the sake of this guide.

The second thing you need to enter into the quiz is your current annual income.

R:IQ will then offer you to select the monthly amount of money you would need to fund your retirement dream. The quiz uses your current monthly income (annual income divided by 12) as a baseline – you may pick an amount higher or lower than your current monthly earnings.

Let’s choose $15,000 for this step.

Your desired monthly funds play a major role in the calculation.

Then, you’ll need to choose how many years you would like to retire in. Let’s select 25.

When do you intend to retire?

Finally, you’ll be asked to type in the amount you have in savings currently. Let’s enter $25,000.

If you have some money saved up already, your journey to retirement will be easier.

On the results screen, you will be presented with a few numbers:

R:IQ result screen.

  • Your R:IQ. This is the amount of money you’ll need to have saved up to be able to have $15,000 per month during your retirement. In our case, the R:IQ is $7,093,300.
  • How much you need to invest monthly to reach your R:IQ. To achieve our R:IQ, we would need to invest $4,285 monthly, as suggested by the tool.
  • Current retirement investments without adding anything else. This field shows how much our current savings (in our case, $25,000) would be worth at the time we retire (in 25 years). Our savings should reach $339,600.
  • How much money you’ll need in total to reach your R:IQ. This figure shows how much money you’ll need to save to fulfill your R:IQ. It’s $6,753,700 in our case.

Editable variables in the R:IQ calculation

The assumptions behind R:IQ's calculation.

One thing to note here – these calculations are based on the following assumptions:

  • The inflation rate is 2.75%, based on the average inflation over the past 25 years calculated by the Bureau of Labor Statistics.
  • A withdrawal rate of 5% during retirement.
  • A rate of return of 11%, based on the average annual return from 1926 through 2011.

You may edit these values (and some others) by clicking the pencil icon at the top left of the page. Here is what you may edit:

Retirement calculators editable variables.

  • Monthly goal $. If you increase the monthly goal, your R:IQ will rise along with the monthly savings you’ll need to make.
  • Working years. The more time you have until your retirement, the less you will have to save monthly, but you’ll have to save more in total due to inflation.
  • Saved $. The more savings you have right now, the less money you’ll need to save to reach your R:IQ.
  • Interest %. The higher the interest (or rate of return), the more the value of your savings will increase over time, allowing you to save less per month.
  • Inflation %. As inflation occurs, money loses its value. The higher the rate of inflation, the higher your R:IQ, and the higher the required monthly savings.
  • Withdrawal rate %. The lower your withdrawal rate, the more you will need to save monthly, and the higher your R:IQ will be.

Note that this isn’t a super-in-depth explanation of the editable variables – play around with them to try to figure out their effect yourself.

The results from above are just half of the story. If you click “Create Your Plan” just under the monthly investment estimates, you’ll proceed to another set of questions:

  • Do you have a will, and is it current? For the sake of our example, we answered “no”.
  • Do you have term life insurance? Again a “no”.
  • Do you have an emergency fund that could cover 3-6 months of expenses? We answered “yes” this time.
  • Do you create a household budget every month? Again “yes”.
  • How much debt do you have? We chose $0-10K.

Once you answer these questions, you’ll be presented with a checklist containing a number of things you’ll need to do – besides saving money – to achieve your retirement goal.

The R:IQ checklist.

How R:IQ Can Help You And What To Consider

So how can Chris Hogan’s R:IQ tool help you save?

Well, it can motivate you to start saving money by providing you with an attractive goal and general guidance on how much cash you should put aside each month. This is pretty awesome, as we and many other people online think.

However, R:IQ isn’t without shortcomings. More specifically:

  • It’s not entirely clear how the results are calculated. We can edit some variables, but what kind of mathematical magic is happening behind the scenes to give us the R:IQ and monthly savings estimates? It would be nice if this was presented a little more explicitly.
  • The calculations are based on assumptions. Inflation, return rate, and your withdrawal rate aren’t static (unlike what the tool assumes) and may vary over time, significantly affecting your savings in the long term.
  • The tool may (possibly) overestimate your “rate of return”. This aspect is a little bit “inside baseball” as they say, but many investing and economic experts don’t believe the the average rate of return from the stock market going into the future will match the rate of return we’ve seen in the past (which is where the R:IQ calculator’s assumption of an 11% return comes from). The period since 1926 coincided with a massive demographic boom and growing population, whereas the US (and the world as whole) have drastically lower birth rates today, and much lower expected economic growth as a result. With that being said, you can always change that variable in the calculator to a more conservative number if you wish.

Conclusion

In the end, R:IQ is indeed a super-useful tool, and overall we definitely recommend it!

Just remember though, that YOU are in charge of your financial future – no one else. So don’t stop at Dave Ramsey or any specific retirement calculator. Commit to becoming a lifelong learner when it comes to money and finance, and resolve to continually be a better steward of money 🙂

 

 

PS – If you’ve never listened to Dave Ramsey or Chris Hogan before, here are some videos of them talking about retirement:

 

 

 

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