Retirement Calculators Show Widely Varying Results: New Study

retirement calculatorOffering plan participants tools such as retirement calculators is a great way to empower them to visualize the effects of savings. It’s quite possible that you or your Advisor have some type of online calculator that participants can input their information and it will calculate things like: ideal contribution amounts each month, monthly Income projections, how much money they will save, etc. These are very effective tools.

However, a new study by Corporate Insight now shows a wide range of outcomes depending of which retirement calculator is used by the same participant. The report cites several possible causes for variance from one firm’s online calculator and that of others. But before you go and yank those calculators down from your web site or intranet, let’s look into why there may be variances…and how to address this issue.

retirement calculators

Source: Corporate Insight (http://www.corporateinsight.com/blog/the-looming-problems-with-retirement-planners)Chart shows wide variance in results.

Using Any Tool Incorrectly Will Have an Effect on Outcomes

Let’s say you ask a school teacher to operate a piece of heavy construction machinery and ask them to excavate an area to pour a foundation for a building, then, simply hand them the keys to the machinery and walk away. Chances are, you will not get the results you are looking for.

First let’s consider the intuitiveness of your calculator. Is it easy to use? Are plan participants likely to be confused by some of the information fields they are asked to input? Many sponsors can overlook or take for granted that their employees will intuitively understand all of the information requests. That is not always the case. Keep in mind, most sponsors have (or should have) very detailed knowledge of the information being offered to participant. And likely, they have had training from their Advisor. That does not mean that the participants will get it!

Also, retirement calculators varied in their output in terms of dollar values. Specifically, some showed results in the future value of dollars and others in present dollar value. This is a huge difference, especially when we are talking about a 40 year horizon.

Put the Role of Advisory in the Hands of the Advisor

The lesson here is that no calculator (or Robo Advisor?) can completely take the place of a professional Advisor for a fully comprehensive and accurate analysis. The report reminds use that we mush understand the perspective of the participants, since they are the ultimate users and benefactor. Furthermore, it should be made clear to the employees that calculators should be used in conjunction with an Advisor and not a replacement for consulting with an Advisor.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
x

Check Also

401k contributions

401k Contributions Pre-Tax or Post Tax is Not an Easy Decision

401k Contributions Pre-Tax or Post-Tax is Not an Easy Decision 401k contributions pre-tax or post-tax is the conundrum facing many 403b and 401k participants.  Plan participants will frequently ask, Should I make my 401k contributions pre-tax or post-tax?  They want ...