U.S. workers saving for the long-term understandably rely on retirement calculators to benchmark their progress and to create a blueprint of how they need to operate to meet their outstretched financial goals.  

But some financial seers say doubt the accuracy of these retirement calculators and view them as dangerous in the way they falsely inspire confidence in the average retirement saver.

A recent Texas Tech study on retirement planning tools, takes a close look at 36 financial calculators and states "in most cases, the available offerings are extremely misleading."

While the calculators studied claimed users had a 70% chance or better odds of reaching their retirement goals, researchers say the figure is closer to 53% -- a significant reduction on likely retirement assets.

"The lack of consistency in inputs and default settings make these tools questionable for planning and educational purposes for households, financial professionals, and academics alike," the study concludes.

Pull the lens back, and the real issue with retirement calculator critics is users not getting reliable data, but using that unreliable data to make big investment decisions.

"As there are apparently many retirement planning tools available -- many from well-known personal finance sites and or financial services providers -- the real issue is accuracy," explains Carla Dearing, CEO of SUM180, a Louisville, Ky.-based online financial planning service designed specifically for women. "In an industry so governed by regulators' standards and rules, it's surprising there is not a set of standards for what variables to include in a retirement calculation."

Perhaps surprisingly, there is no shortage of investment industry insiders who agree, and are highly critical of retirement planning calculators.

"Most calculators are, indeed, rubbish," says James Carlson, chief investment officer at Charleston, S.C.-based Questis, Inc., a software company currently engaged in building its own retirement planning calculator. The problem, Carlson states, is that most tools only focus on a one-part equation, which is accumulating a nest egg of assets by some future retirement date.

"While many do properly simulate a wide variety of outcomes using Monte Carlo analysis, the best of breed calculators do not stop with computing a nest egg number," he says. "Only a handful of calculators are incorporating the latest asset management concepts."


Others say retirement calculators have some value, but are no substitute for a more thorough, carefully-crafted long-term savings plan. "Retirement calculators are a good start in looking at your retirement picture but not enough to build your lifetime goals and financial plan," says Michael Sander, vice president at The Creative Planners Group, Ltd., in Tarrytown, N.Y. "A retirement calculator is too simple and does not take into account many items such as inflation, health costs, and many other key issues," Sander states.

"As for their accuracy, I'd have to say 'no'," he adds. "Planning for retirement requires the use of two things -- a financial advisor with vast experience of using financial planning software, and actual financial planning software, like MoneyGuidePro, which includes everything that one will face in their financial life."

Fair enough, but few financial experts say consumers will stop using retirement calculators.

So what embedded features should they look for to gain maximum advantage from retirement calculators?

"There are a few components that better online retirement calculators should have," says Ben Birken, a financial advisor with Woodward Financial Advisors, in Chapel Hill, N.C.. "The best one should include questions about health and lifestyle, in order to come up with a more realistic life expectancy than just using averages. Additionally, they should include the ability to factor in different types of accounts -- e.g., after-tax, tax deferred and tax free -- to better model tax consequences of withdrawals, rather than just lumping everything together."

"For married people, a good calculator should also have the ability to maximize Social Security claiming strategies, and posses forward looking return assumptions that are reasonable," Birken notes.

The consensus gleaned from talking to finance experts is not to stop using retirement calculators altogether (at the very least, they get you thinking about long-term planning, which is a big positive.) The main takeaway is to adopt a "buyer beware" attitude and understand the limitations that come part and parcel with such tools.

And leave the real retirement planning to the human element - - specifically, you and your financial advisor.

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