Why Your Retirement Calculator Could Be Your Downfall
Life + Money

Why Your Retirement Calculator Could Be Your Downfall


An online planning tool might seem like an easy way to determine your financial standing in retirement, but the results could be wildly inaccurate, according to new research.

A new study of 36 popular online retirement tools published on Social Science Research Network found that “in most cases, the available offerings are, extremely misleading” and are unhelpful to consumers trying to get their finances in order and ensure a secure retirement.

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Researchers compared the results from an array of low-cost or free retirement guidance tools with private planning software that professionals rely on to gauge how a hypothetical couple in their late 50s who each earn $50,000 and plan to stop working at ages 65 and 63 would fare in retirement.

Using the private software MoneyGuidePro that many professionals employ, the researchers found that the couple only had a 53 percent chance of a favorable retirement.

Yet only 11 of the 36 online tools tested were successful in cautioning the couple that they would have a retirement shortfall. More than two-thirds of the tools were incorrect and indicated that the hypothetical couple could retire with significant monetary confidence, defined as 70 percent or greater odds of being comfortable in their golden years. The guides that were tested included ones from AARP, Nationwide, Mass Mutual, Vanguard Group, MarketWatch, Lincoln Financial Group, among others.

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How each tool performed specifically wasn’t included because the purpose “wasn’t to pinpoint or call anyone out,” says one of study’s researchers, Taft Dorman. He says the main purpose of the paper was to give suggestions for how the tools could improve.   

The report determined that publically available planning tools are not taking into account important factors for retirement calculations, resulting in “highly variable and confusing results.” Even among the guides that passed the test, critical variables, like a history of smoking, weren’t included.

Not only are the tools unhelpful, Dorman says, but because the results from are “drastically different from tool to tool, it can be drastically misleading and confusing to consumers who use one tool and trust it and then use another tool and get another answer.”

Melissa Sotudeh, a wealth advisor at Halpern Financial, agrees with the findings and says that online retirement tools have a limited usefulness because of the various financial planning areas they’re excluding, and “all of these factors also need to be weighed with individual goals.” 

According to Justin Price, president at AIM Advisory Group, the programs “really don’t have much value and serve primarily as marketing tools for the respective companies.” Because the tools don’t ask for enough information from consumers, Price says they can’t provide consumers with useful guidance.

Part of the paper is devoted to a list of more than 20 factors that the researchers believe should be included in any public retirement tool, based on “both economic theory and practitioner experience.”  These include assessments of personal health, accumulated savings and debt, future return assumptions regarding stocks and bonds and expected inheritances, among others.

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Dorman advises consumers who are looking for retirement financial advice to find a certified financial planner to guide them in their specific situation. “Financial planning and retirement is a complex animal, and people don’t see it that way. They think it’s more simple than it is,” Dorman says.