Financial Planning: Helping You Reach Your Goals

An academic study of 36 retirement planning tools, widely available online, concluded “in most cases, the available offerings are extremely misleading.” The study was done by researchers at Texas Tech University and Utah Valley University. The researchers looked at online guidance tools from free to low-cost calculators. The hypothetical situation was a couple in their late 50s earning $50,000 each who wanted to retire at ages 65 and 63.

For the purpose of comparison, the team used MoneyGuidePro, the most popular professional financial planning software (note: this is the software most often used by Rowland Carmichael for pre-retirement/retirement planning), and the probability of having enough money through retirement was 53%. However, two-thirds of the retirement tools indicated the couple could retire with a 70% confidence or greater. In other words, an optimistic conclusion might encourage the couple in the above example to retire with too much confidence and end up running out of money more quickly.

All modeling tools require some assumptions to complete the calculations. Based upon our more than 30 years of experience, we know the software helps clients understand the tradeoffs they face. Among those tradeoffs include when you retire, how much you spend, and how many years the plan covers in retirement. Other important factors are tax rates, inflation rates, and expected rates of return.

In our opinion, professional assistance using more sophisticated software should be consulted. All retirement planning is a combination of a road map and an anticipated journey with many twists and turns. The markets, both stock and bond, will challenge even the most seasoned investor. We are here to help.

Source: “New Study Questions Retirement Planning Calculators’ Accuracy” Wall Street Journal, February 22, 2016 by Karen Damato and Anne Tergesen