Many providers offer tools that help retirement plan participants determine whether they are on track to replace a sufficient amount of income in retirement, and some offer suggestions for how to improve their prospects. We asked NewsDash readers, “Have you used such a tool, did you believe the results or take them seriously, and how did the results make you feel?”
A vast majority (95.7%) have used a retirement readiness or retirement income projection tool, while 4.3% have not. Nearly two-thirds (64.4%) indicated that they believed the results and took them seriously, but 35.6% did not. The results made 47.7% of responding readers feel encouraged, 6.8% feel discouraged, and 45.4% neither encouraged nor discouraged.
Among verbatim comments, many responding readers pointed out that these types of tools neglect to account for all important variables and should be taken with a “grain of salt.” However, even readers who doubted their accuracy indicated they provide a good guideline to get participants more engaged in their retirement saving.
As always, all verbatim responses reflect the opinions of individual readers and not the stance of PLANSPONSOR or its affiliates at Strategic Insight.
“They may not be 100% ‘accurate,’ but they at least give you a guideline and a ‘scale’ to go by to see if you are continuing to improve your financial position.”
“I think the tool overestimated the earnings rate/potential and made it seem like I was in better shape than I really am (at least in my opinion of my retirement readiness or lack thereof).”
“I use the income projection calculator provided by my 401(k) plan provider and check it against an Excel calculator I built for myself.”
“The tools I’ve seen, although they try to be flexible, don’t model many of the scenarios I want to consider.”
“We offer Financial Engines with our 401(k) plan. I particularly like it, as it incorporates data from all of my retirement and investment accounts including those of my spouse.”
“The [tools’] level of sophistication is improving, but this is still not a good substitute for working with a knowledgeable financial planner.”
“They’re great for creating awareness, but they need to be reviewed with a client on a recurring basis. Otherwise, it’s nothing more than a visit to a gypsy with a crystal ball.”
“The tools that disclose the underlying assumptions get more credence, in my opinion. Those that allow you to modify them are the best.”
“I didn’t have much trust in such tools until I used a Monte Carlo simulation tool that gave me the odds of succeeding to accumulate an adequate retirement fund.”
“The biggest problem with these tools is they are too inflexible in their assumptions, Social Security is an estimate, and the ability to take future DB [defined benefit] accruals and different possible retirement ages into account is very limited.”
And the Editor’s Choice goes to the reader who said, “There are way too many variables in a person’s life over the next 20 to 40 years to put stock in those projections. For someone who has not done a lot of planning, I have seen it be a great motivational tool to show them their future life of poverty if they don’t make some changes.”
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