Online investment calculators are a little addictive.

Just plug in a couple of numbers and voila! -- the screen tells you if your retirement savings will actually last through retirement. Skip to the next calculator and you can find out in less than a minute just how long it will take to pay off your credit card, and how much interest it will cost you.

But while online calculators are a nice, little diversion for Web-savvy investors, can they really be trusted? Monty Hothersall doesn't think so.

Hothersall is the co-founder of Financial Modeling Solutions, an Atlanta-based company that makes Financial Fate tracking software. When Hothersall and co-founder Aydren Simmons were building Financial Fate in 2004, they opted against using the same kind of mathematical engine, called a Monte Carlo simulation, that drives many online retirement calculators. "What we found out is that there are a few big problems with Monte Carlo," says Hothersall. "The first problem is that it's planning with the autopilot turned on, and that's not a good way to plan."

Monte Carlo simulations came in vogue in the 1960s as computers gained enough power to compute complex mathematical series. These simulations were quite different from simple calculations, which were derided for being one-dimensional, offering just a static view of, say, retirement savings. Monte Carlo simulations, on the other hand, run thousands or even millions of scenarios to determine the probabilities for a particular outcome, such as whether your retirement savings will last through retirement.

Monte Carlo simulations take into account the fact that markets are volatile, and that returns could change from year to year -- and even post strings of bad years. As a result, Monte Carlo was seen as a giant leap forward in financial planning. And that reputation grew over the years: In a 2001 BusinessWeek article charting the rising popularity of Monte Carlo simulations for financial planning, Moshe Arye Milevsky, a finance professor at York University in Toronto, noted that "in five years, all financial planning will be Monte Carlo."

But while Monte Carlo simulations offer a more nuanced look at financial planning than simple calculations, critics such as Hothersall say the simulations don't give investors the whole picture. For example, Hothersall says financial planning should incorporate a four-legged stool of income, expenses, taxes and investments. Monte Carlo, he argues, focuses only on market returns and ignores the rest. "That's great if you're Warren Buffett, but the rest of us need to focus on the other three legs or the table will collapse," he says.

Hothersall contends that investors need to use planning tools that take into account real-life bumps in the road, from the impact of income taxes to how a part-time job in retirement will affect Social Security benefits. And what if an investor retires at age 60, years before Medicare kicks in? Answer: Thousands of dollars annually going toward health insurance premiums -- a cost that doesn't get factored in by the average retirement planning tool. "Monte Carlo is very quick and easy, but that's the problem," says Hothersall. "They're trying to fit a complex situation into a simple model."

Despite the preponderance of online Monte Carlo-based retirement calculators, there are plenty of critics who agree with Hothersall that the simulations leave important information out of their equations. David Nawrocki, a finance professor at Villanova University in Pennsylvania, in 2001 published his case against Monte Carlo simulations in the Journal of Financial Planning, noting that the simulations, at worst, "can lead to incorrect decisions" by investors. He argues that Monte Carlo simulations are useful in situations where data is hard, or impossible, to get. "This is not the case in the investment decisions typically faced by financial planners," he writes. "Financial market data is plentiful and cheap."

So barring Monte Carlo simulations, where can the typical investor turn to get a good handle on retirement planning? Hothersall says there are alternatives for the do-it-yourselfer, including software such as Financial Fate. And according to Nawrocki, there are plenty of analytical models that can be used to give investors get a more realistic picture of their retirement plans. But unless you're a math whiz, your best bet may be to leave the number crunching to the experts and get in touch with a trustworthy financial planner.

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