Online Retirement Calculators Called ‘Misleading’ by Researchers

In a study of 36 online retirement planning tools, researchers found that just 11 succeeded in giving the correct analysis of whether a hypothetical couple could meet their retirement goals.

Researchers used harsh words to summarize their analysis of online retirement planning tools. They bluntly concluded, “The advice provided from a majority of these tools is extremely misleading to households.” Out of the 36 tools tested, just 11 succeeded in giving the correct analysis. Even then, a questions were raised about at least one of the successful 11 tools.

The retirement planning tools tested were designed to tell individuals whether or not they (and their spouse) can meet their retirement goals. These tools are either free or cost just a modest amount. They can also be used without the assistance of a financial planner. Included in the study were tools from AARP, Bankrate.com, Chase, Fidelity, Voya, MarketWatch, Prudential, Schwab, TD Ameritrade, USAA, Vanguard and Yahoo Finance, among several others. The study did not state which tools passed or failed.

Among the faults found with these tools was the lack of options for drawing down retirement savings, such as annuitizing 401(k) assets. Most tools do not account for gradual retirement where one or both members of a household choose to continue to working on a part-time or consultancy basis. Additionally, the results given by the tools were “highly variable and confusing.” The latter critique is troubling because of the lack of consistency among the tools, but also because many individuals are unaware that the answers differ depending on which tool is used.

The variables considered by each tool were a particular point of contention. Key variables important to determining retirement success include current age and life expectancy, current income, bequest amounts, expected returns, Social Security income and retirement living expenses. The average tool lacked most variables suggested by accepted financial theory and recommended by a survey of financial professionals. In other words, most tools do not consider all of the major variables that will influence an individual’s chance of a financially successful retirement.

To test the tools, the researchers used a hypothetical couple in their late 50s with a targeted retirement age of 65 for the older spouse and the two-year-younger spouse retiring at the same time. Using an accepted professional financial planning software program as a benchmark, this couple only had a 53% chance of not running out of money in retirement. Yet most of the tested tools said the couple could retire successfully.

Source: “The Efficacy of Publically-Available Retirement Planning Tools;” Taft Dorman, Barry Mulholland, Qianwen Bi and Harold Evensky; SSRN, January 20, 2016.