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Retirement Planning Tools Undermining Retirement Planning?

A paper titled “The Efficacy of Publically-Available Retirement Planning Tools” suggests that most individuals would be better off without them.

And while the report catalogues a number of concerns about the output(s) from such tools, the authors seem most concerned about the lack of consistency in inputs and default settings, which it says make these tools “questionable for planning and educational purposes for households, financial professionals, and academics alike.”

The paper investigates the necessary inputs and default settings of publicly available retirement planning tools while focusing on three specific outcomes: the relevance of the advice provided to households using these tools, the risk household’s face by using these tools, and information that the researchers say tool developers need to convert their tools, as necessary, from their current state, into more valuable guides.

The report’s authors claim that, since the beginning, publicly available retirement planning tools have “long been known to be inefficient for retirement planning,” and that “many have imprecisely calculated critical retirement planning variables such as social security, investment rates of return, longevity risk, and income replacement rates,” and that such tools may cause households to make detrimental retirement planning decisions.

Oddly, considering how few individuals have reportedly used such tools, the report suggests that many of these publicly available retirement planning tools may reduce the probability of a household participating in employer retirement plans because they fail to provide efficient decumulation options, such as the option to annuitize 401k plan assets. Moreover, it says that most publicly available retirement planning tools do not recognize that some households prefer to retire gradually, rather than identifying a date that acts as a light switch that is instantly changed from "not retired" to "retired."

The researchers note that the consensus of most literature on these tools is that they are useful if their limitations are understood by the users, and “if the number of available tools is any indication, clearly there is a demand by households for help with retirement planning.”

They group the input variables into four major categories: (1) ages (current age, target retirement age and life expectancy), (2) income (current annual income and expected future income), (3) assets (current accumulated assets and bequest amounts) and (4) rates (expected constant rates of return on assets, inflation rates, and tax rates), before going on to note that, of these variables, life expectancy, the average age that a person will live to given their current age, has proven to be problematic in retirement needs calculations. And they go on to note that since life expectancy determines planning horizon, it might well be the most important assumption in this group of variables, though many folks get it wrong while planning for their future.

The researchers structured a combination of variables that would, in their estimation, result in a less than acceptable probability of a successful retirement, more precisely, that they had only a 53% probability, and then applied it to 36 different tools.

What they found was that those tools provided “highly variable” results. They conclude that, in most cases, the available offerings are, extremely misleading — and therefore disagreed with a research conclusion by John Turner that those tools, even with their flaws, provide some help to consumers.

“The lack of consistency in inputs and default settings make these tools questionable for planning and educational purposes for households, financial professionals, and academics alike. If households are to use these tools either for planning or educational purposes, it is clear that the tools need to offer appropriate and similar input options and default settings.”

The tools used for the study:


  • AARP Retirement Calculator

  • Ameriprise Retirement Calculator

  • Bankrate.com Financial Goal Calculator

  • Chase Retirement Calculator

  • Dailyfinance.com Retirement Calculator

  • ESPlanner Basic

  • E-Trade Retirement Planning Calculator

  • Fidelity Retirement Tools

  • Financial Mentor Ultimate Retirement Calculator

  • FINRA Tools & Calculators

  • FireCalc

  • Flexible Retirement Planner

  • InCharge Retirement Planner

  • Voya

  • J&L Retirement Planning Software

  • John Hancock Tools

  • Kiplinger.com Tools and Calculators

  • Lincoln Financial Calculators

  • Marketwatch (SmartMoney) Retirement Planning Tool

  • Mass Mutual Retirement Calculators

  • Merrill Edge Retirement Calculator

  • MetLife Retirement Planning Tools

  • Motley Fool Personal Finance Tools

  • MSN Money Retirement Calculator

  • Nationwide Retirement Planning Tools

  • Prudential Retirement Planning Calculator

  • Schwab Retirement Calculator

  • Scottrade Tools

  • TD Ameritrade WealthRuler

  • TIAA-CREF Retirement Advisor Tool

  • T. Rowe Price Comprehensive Tools

  • USAA Retirement Planning

  • Vanguard Retirement Tools

  • WealthTrace

  • Yahoo Finance Retirement Calculator

  • Choose to Save Ballpark Retirement Estimator

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