A new research paper not only claims that online retirement planning calculators provide bad results, but that they may actually be undermining retirement plan participation — but that’s not the sense one gets in this week’s reader poll.
The vast majority of reader respondents (91%) recommend and/or use a retirement planning calculator in their practice — indeed, roughly a third of those use more than one. As for those who don’t, they seem to be as skeptical of their outcomes as the research paper cited above. As one reader noted, “We have long believed that they are inconsistent and inaccurate.”
“We believe that calculators are so much of a detractor that we have decided to implement our own financial planning offering. We’ve hired CFPs to prepare plans for the employees of our plans at no cost.”
Tools Used
While many advisors use the tools offered by the platform provider, among the other options used by this week’s respondents were:
- Manning and Napier's Clarity Reports
- TRAK’s Batch Gap Report
- Advice by Ibbotson provided through Morningstar
- eMoney Advisor
- EMoney Retirement Analysis
- www.finmason.com
- AdvicePlus
- Personal Retirement Assessment, Traditional IRA Future Value Calculator (Traditional IRA Calculator), Roth IRA Future Value Calculator (Roth IRA Calculator), Roth vs. Traditional IRA, 401(k) Savings Calculator, 403(b) Savings Calculator
- Retireup and Fidelity Retirement Income Evaluator
Among this week’s respondents, half said the calculator they used with participants was the same they used for their own planning, and for nearly 4 in 10, it was one of the ones they used.
Pros and Cons
As for how they came to rely on their preferred calculator, respondents offered a variety of explanations:
“TRAK’s is ideal for a one-page report for plan participants,” noted one. “If they need a more detailed analysis, we can run a more detailed analysis utilizing Emoney's Retirement Analysis.” Another reader preferred the Ibbotson tool “because it runs Monte Carlo Simulations to project a probability of success rather than a static output.”
One reader cautioned, “The only financial planning tool that is effective is one prepared by a CFP that is comprehensive yet with output that’s easy to understand and can be continually adjusted. Giving an employee an online tool to plan for their retirement is such a disservice. Like saving for retirement, planning for retirement and through retirement shouldn’t be done by the push of a button.”
“We have used TRAKs for many years based upon the fact that participants do not utilize their vendor’s calculators on the website,” noted one reader, who further explained that retirement calculators are a conversation starter — not meant to be an all-inclusive analysis. They also noted that with TRAK, “we can PUSH to information to a participant, rather than the PULLING it from a website. Presented in a group setting, and then one-on-one meetings for individualized advice.”
One reader liked www.finmason.com “because it does not just measure risk tolerance, it helps people to understand the real trade-off between risk and return so they know what to expect from their investments. I would like to see it handle more complicated financial situations, but it strikes a pretty good balance at getting good answers while still being simple enough so that people want to use it (and make it all the way through the process).”
As for Retireup, one reader noted that it was “Simple to use and involves the client. The more you can involve the client the more the program is theirs, and the more likely they agree with the results.”
Closing Observations
Among the general comments received were the following.
“Participants need to know the answers to a lot of questions that are used in the planning,” noted one, who also said that “Participants need to use them at least once a year. We always let them know you can’t plan for retirement in one day; it is an ongoing process.”
“Some tools have been honed and tested to give people the best experience, even on mobile,” observed one reader. “Other tools look like they are from the 90s, are complicated and cumbersome, and will probably end up disengaging the participant more often than not.”
“Most use straight line assumptions for return on investment,” commented another. “That is unrealistic and unhelpful.”
On the other hand, one reader noted that calculators “…motivate people to take action. The calculator results can be a real eye-opener and illustrate a gap (sometimes very large...) the client did not anticipate.”
But one reader summed up many of the arguments quite simply: “They are useless without the assistance of an advisor.”
Thanks to everyone who participated in our weekly reader poll! Got something you’d like to run past our readership? Something that you’d like to know how other NAPA Net readers are dealing with? Post it in the comments below, or email me at [email protected].
