A study of a dozen different retirement calculators finds as much as a 60% spread in the monthly income projections – and an even bigger gap in the income goals.
Using a consistent set of variables, Corporate Insight looked at 12 different calculators, finding that the highest monthly income projection for that profile was $6,013 (MassMutual), while the lowest (TIAA) projected just $3,772. The average (mean) monthly income projection is $4,792, while the median result was $4,568. No two calculators generated the exact same result, though two did produce monthly income projections that were within $88 of one another.
They found that the income goals provided by these tools vary by an even greater amount than the income projections. The one that generated the largest monthly income goal (Principal) targeted a monthly income goal of $9,029, while the lowest (TIAA) came in at $4,892 — roughly an 85% spread. The average (mean) monthly income goal is $6,615, while the median result is $6,458. Here at least three of the calculators provided identical income goals of $7,083 per month.
The study identified six key factors that seemed to be the primary results of the variation between tools’ income projections: taxes, inflation rates, salary growth, Social Security benefits, investment returns and ages—and four assumptions causing the differences in income goals: income replacement ratio, salary growth, inflation rates and taxes.
As for the biggest impact, the investment return assumptions used by tools in this report diverge the most among these six variables, making it one of the largest factors causing discrepancies in the results. In particular, the study found variation in tools’ distinctions between pre- and post-retirement returns. Specifically, while they worked with a profile that assumed 7% pre-retirement and 4% post-retirement investment returns, some calculators allowed for the input of a single investment return figure, while others did not permit users to adjust assumed investment returns at all.
The findings echo concerns expressed in a study published earlier this year that cited a lack of consistency in inputs and default settings that not only provided “highly variable” results, but that as a result made the tools “questionable for planning and educational purposes for households, financial professionals, and academics alike.”
Ultimately, of course, the real problem with retirement calculators may not be the assumptions made by these calculators, or how they are misunderstood – but that so few retirement savers actually try to use them.
