Adequacy of Publicly Available Retirement Planning Tools
March 23, 2016 - Strategic Allocation
Should investors trust retirement planning tools that are publicly available on financial websites? In their February 2016 paper entitled “The Efficacy of Publicly-Available Retirement Planning Tools”, Taft Dorman, Barry Mulholland, Qianwen Bi and Harold Evensky:
- Identify via theoretical analysis and a survey of financial professionals the demographic, financial and economic variables important as inputs to retirement planning.
- Assess effectiveness in using these inputs of 36 retirement planning tools available at no/modest cost without the intervention of a financial professional.
The second step is based on the following retirement scenario:
- Couple (male age 59 and female age 57), each with annual income $50,000.
- Total current investment assets $700,000.
- Expected retirement ages 65 and 63, respectively.
- Expected annual real retirement expenses after income taxes $70,000.
- Social Security income to begin at age 66.
- Life expectancies 90 and 92, respectively.
They establish a benchmark by using these inputs in MoneyGuidePro (used by the plurality of professionals responding to the survey) with estimates for expected investment return, inflation rate and tax rate, generating an unacceptably low 53% probability of successful retirement. If a retirement planning tool using these same estimates (to the extent it can) indicates that the couple can retire as expected qualitatively with a simple statement or quantitatively with 70%+ confidence, they classify the tool as failed. Using survey responses from 297 financial professionals, MoneyGuidePro and the 36 retirement planning tools, they find that: Keep Reading