By Junior Yearwood

In this month’s “Best Of” feature we’re taking a look at retirement calculators, those little widgets we find on almost every financial website. Having a reliable estimate is critical to adjusting both our expectations and our current efforts.  Retirement calculators are predictive tools; some offer simple extrapolations while others undertake complex Monte Carlo analyses in which they simulate hundreds of possible markets.  Simple tools tend to produce a single number (“you’ll have $427,218.27”) while more complex ones offer a range of possible outcomes and probabilities for each (“you have a 10% chance of having $600,000 or more, a 50% chance of …”).  Regardless, none offer guarantees.

The question is: who offers a reliable estimate for you?

So how did we choose this month’s “Best of” Retirement Planners?

1. We createdan imaginary investor, Robin.
   • Age 50
   • Income: $50 000/year
   • 401(k) balance of $100,000.
   • Retirement age 70 (20 years from now) and with end of plan (death) in 20
   • Total annual contribution (employer + employee) of $7000.

   We used the same inputs for projected inflation, rates of return, asset allocation and post-retirement income needs (not all sites requested all of that info).

2. We identifieda dozen popular web-based retirement income calculators.
   • We searched the phrase “retirement income calculator” reviewing the first 50 sites.
   • We eliminated those requiring registration and those that were duplicated from one site to the next.
   • We limited ourselves calculators to major retirement plan providers, financial news and information sites, and independent organizations (such as AARP or FINRA).
3. We graded each calculator on three criteria:
   • Ease of use and comprehension
   • 20 minute time limit to get results. Apart from basic personal and financial information we required the following inputs:
     • Inflation rate
     • Social security benefits
     • Investment allocation and/or simulation of multiple market scenarios
   • Quality of output and ability to adjust variables.  In particular we looked for:
     • Results presented in simple terms, either in monthly or annual income
     • The probability of success (or failure), rather than a “magic number”
     • Recommendations to reach your desired goal

We came up with eight finalists. Of these, two met all our requirements while a third fell just short. To emphasize the need to consult a financial professional and not rely solely on retirement income calculators for your retirement planning, we have included a professional report on Robin’s retirement prospects that was prepared by Johanna. Things may not be as rosy for Robin as some of the calculators predict…

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T Rowe Price – Retirement Income Calculator

Their Premise

T Rowe Price promises a quick and simple process that should be completed in 10 minutes or less and claims to get us there in three easy steps!

Our Evaluation

The Calulator

https://www3.troweprice.com/ric/ricweb/public/ric.do

The Process

T Rowe Price uses a multi-page approach with little touches of animation. This was one of only two calculators that met all of our input requirements. The “tell us about you” section is pretty straightforward. You begin by entering your basic information and then your status (saving, preparing for or living in retirement).

Ease of Use

This software is easy to use and the pages really fly by. Convenient worksheets are provided to aid you with your calculations should you need them and inflation is automatically calculated. I found the experience simple, pleasant, and straightforward.

Input and time required

Speed-wise, they live up to their promise. The financial evaluation section is pretty straightforward. You begin by entering basic financial information, and then go on to simple asset allocation choices where you can choose a TRP model portfolio or adjust sliders to a mix of investments. (Our investor chose 70% stocks and 30% bonds as his current allocation and 35% stocks, 35% bonds and 30% short term for retirement.)

Finally, you enter your proposed retirement age and other income (such as Social Security, which the system can project).

Quality of Output

You’ll get a couple of compact summaries that include a probability of your money lasting until the age of 95. The first estimates your monthly income, assuming 75% of pre-retirement income. The second scenario projects the total amount that they estimate you will be earning monthly based upon your data entry.

For example, TRP concludes Robin will need $3125.00 a month during retirement while he is set to make $3414.00 from Social Security and his retirement account. If he spends 75% of his previous income there is an 83% chance that his money will last. If he chooses to spend it all, the Monte Carlo results drop to the suggested minimum of 70%.

You have the opportunity to adjust your inputs and compare the results of your adjustments against your current results. On the suggestions page, you’ll see a final wrap up and recommendations that can help you achieve your goals.

Bottom Line

Pros: Easy to use and easy to understand. Solid set of inputs and a quick turnover time. Good output quality and free tools from Morningstar

Cons: Some settings (pre-retirement income percentage and length of retirement) are fixed.

Johanna’s comments: I liked the simplicity of input and the last screen offering options to adjust various numbers was pretty slick. The TRP tool is fairly robust and I must say that the upside to registering is that you can save your information. The interactive presentation at the end is nice if you don’t leave the site too quickly (which I did the first time I ran through the numbers). A problem I have with the presentation, though, is that in offering the choice of allocations, risk is not explained. Users may naturally be drawn to the 100% equity allocation without understanding the impact of volatility, even though the program makes recommendations). Surprisingly again, no inflation numbers that I can find.

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CNN Money – Retirement Income Calculator

Their Premise

CNN Money promises to help you evaluate how well your savings program is preparing you for retirement. They also tell you your chances of getting there and offer suggestions if you are falling short.

Our Evaluation

The Calculator

http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp

The Process

CNN Money eschews style for substance choosing a simple, static, tabbed layout. The presentation is simple and the operation straightforward. Enter info, click next.

Ease of Use

Things move along at a quick pace and you are never stuck on a tab for very long. Social security and inflation are also calculated for you. The language is simple to understand and process is as easy as Sunday morning.

Input and time required

All our input requirements were met (although rate of return was dealt with in their output) and the process was over in less than 10 minutes. The calculator is divided into five tabs, four of these are dedicated to input; goals, income, savings and portfolio. Under “Goals” you enter your age, your desired retirement age, your life expectancy, as well as what you currently earn and desired retirement income. Under “Income” you enter your desired retirement age and any expected sources of retirement income including expected pensions and social security (the number is calculated for you). The “Savings” tab lets you enter your current total retirement savings and the total (employer + employee) annual contribution to your retirement. You can also add information about taxable accounts and taxes. Under “Portfolio” you can choose one of seven allocation options, from very conservative to very aggressive. Our investor chose an aggressive portfolio, 70% stock (10% non US) and 30% bonds (5% treasury bills)

Quality of Output

The “Results” tab summarizes using simple and plain language and wastes no time beating around the bush. The tab is broken into two main segments. YOUR NEEDS briefly outlines how much money you will require annually (with adjustments for inflation), and how big a nest egg you need to achieve your goal. Your CHANCES OF GETTING THERE tells you at what rate your investments need to grow in order to achieve your target. It also estimates the probability that your investments will grow by the required rate. CNN Money (unlike T Rowe Price) gives no explanation of how they came up with these results, though. Below the brief summary, a bar chart displays the probability of four different retirement scenarios. You are given options to view your annual cash flow and to tweak your results.

Bottom Line

Pros: Fast and easy to use. Simple and straightforward. Good range of inputs. Gives a range of possible scenarios and the probability of each.

Cons: No explanation of their methodology. How they decide what chance your investments have of growing by a particular rate is not clear. While they give you the probability of reaching your initial savings target, they don’t estimate the chances of your money lasting throughout your retirement.

CNN Money estimates that there is a 99% chance that our investor’s portfolio will grow at the rate required to achieve his retirement savings goal.

Johanna’s comments: The calculator was not especially easy to find from the home page – I would have preferred to have a “Tools” link that took me to the calculator instead of reading and guessing what I needed from a list of questions. These two were the only programs I looked at, however, that let the user choose between portfolio allocations (rather than inputting a desired rate of return) and I liked that feature. I was left to assume that the planner uses Monte Carlo simulations to get to the predicted chance that Robin will reach his goal. I like the cash flow page, which allows skeptical me to do a couple of quick checks on their numbers!

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The Rest

MSN Money gets an honorable mention. They take the “less is more” route but ultimately it’s just a bit too lightweight; offering a quick and dirty one page retirement calculator that is useful as a fast reference but little more.

You can find the other five finalists here:

Website	Easy to locate	Ease of Use	Flexibility	Clarity of Results	My Rating	Johanna’s Comments
AARP	YES	YES	YES	SO-SO	2	Like the graph for projected savings. However, it appears that this tool drastically underestimates what Robin will need to have saved for retirement.
Bloomberg	YES	YES	YES	MIXED	5	No consideration for inflation; no guidance on how much you’ll need at retirement. They must have changed the tool but not the directions because they refer to withdrawals but there is no input for them.
Fidelity	YES	YES		YES	3	Except for The Voice, this is a nice little tool that is quite adequate for a quick check-up
Kiplinger	YES	YES	NO	YES	4	Helpful home equity section. Problem: asks you to estimate both average return and % of  in equities, even though these figures are highly correlated.
Merrill/BOA	YES	YES	NO	YES	3	Same comments as Fidelity. A little more info than Fido but not happy with the portfolio choices.
TIAA-CREF	NO	YES	YES	NO	n/a	This is a school-employee site. If you’re not one, go elsewhere. If you are, this is for you as it focuses on the unique plans of school employees
Vanguard	NO	YES	YES	YES	1	My favorite of all, but I had to Google to find the link as it was MIA from the home page. Does not calculate account balance at retirement.

The chart above can be downloaded as a .pdf file, as well.

As always we realize that our picks may have left out a candidate that turns out to be superior. Please contact me if you have a website or calculator that you believe we should add. We always look forward to your feedback.

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