January 23, 2005 06:31 AM
Planning Your Retirement Online
Excerpt: So who is most likely to get caught curled up with a good retirement tool? For starters, the type who would do their own taxes, says Ridley-Hanson. Experts site characteristics such as self-directed, detail-oriented and tech-savvy as requisites.
Imagine a loved one needs emergency surgery. In the operating room, the doctor turns to you. "Where would you like us to cut?"
The physician points to a surgical calculator in the corner of the room. "Go play around and see if you can find a direction," he says.
Unrealistic? Not in the world of retirement planning, where financial novices are forced to make decisions far beyond their comprehension, says Brooks Hamilton, founder of Brooks Hamilton & Associates, an employee benefits consultancy focusing on the 401(k) investment performance gap. "There was no Million Man March in Washington by workers demanding the right to direct their own investments," he adds.
Hamilton isn't the only one who compares do-it-yourself retirement planning to a layperson performing surgery. Even Jennifer Ridley-Hanson, a Certified Financial Planner who manages a team of CFPs at the education and consulting company Financial Finesse, has been stumped by an online retirement planning tool.
After calculating her finances, the tool spit out an unappetizing figure: It said she needed to save $992,000 for a comfortable retirement. She was already socking money away in her 401(k); how would she ever save that much more?
Looking back at the inputs, it hit her. The tool hadn't asked what she's already saving, so it hadn't taken that into account. Whew.
Three types of tools
Do-it-yourselfers can turn to three basic types of technology tools for retirement planning, according to a recent Retirement Planning Software report from LIMRA International and the Society of Actuaries:
savings calculators,
online advice providers,
planning software.
Tools range from simple to sophisticated, with the six consumer programs studied requiring 20 to 160 inputs.
Some even use a statistical technique called Monte Carlo to generate values for unknown variables, allowing users to see the likelihood of their savings lasting throughout retirement.
"The value of consumer software is to help the average person be aware of the magnitude of saving for retirement -- how just a little bit more saved can go a long way," explains Betty Meredith, director of education and research at the International Foundation for Retirement Education, and a member of the software report's project oversight group.
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