My dad says he never thought much about saving for retirement. Setting aside funds for his pension, investing them, and keeping track--those tasks were his employer's lookout. Me, I spend way too much of my own time on all that. Just finding a credible answer to a basic question--what will my retirement income be?--can make me crazy.
This generation gap keeps growing as the burden of preparing for retirement shifts steadily from employers and government to you and me. "People are feeling very anxious," says Christopher Jones, strategist at Financial Engines, a new investment adviser. "You wonder: `Am I doing O.K., or am I screwing up?"'
Relief from anxiety, I'm happy to report, is on the way. More employers, including such early adopters as Netscape Communications and Fujitsu America, are offering interactive financial-planning services via company intranets or the Internet. The idea is to advise employees on how much to save and how best to split up those savings among a plan's investment choices. Ultimately, this personalized advice will replace the generic--and inadequate--pamphlets or seminars that have been used to coach us in running retirement portfolios.
If you work for yourself or just want a head start, you can use some services via the Net for a fee (table). I spent the past couple of weeks looking at four competing services: 401k Forum, the first in the field; DirectAdvice.com, which advises on a broader range of issues; Financial Engines, whose software is built on the work of company founder and Nobel laureate economist William Sharpe; and Standard & Poor's, which aims eventually to offer its new 401(k) Advisor in conjunction with S&P PersoNal Wealth (www.personalwealth.com), its Web site for individual investors (like BUSINESS WEEK, S&P is a unit of The McGraw-Hill Companies).
My verdict: Interactive investment advice is a quantum leap beyond what employers offer today. At their best, they give objective solutions to the puzzle of how best to split your 401(k) assets among your plan's investment choices, given the risk you want. For example, S&P's 401(k) Advisor suggested that if I could handle high risk, I should put nearly all my assets in company stockand stock funds. At much lower risk, I'd keep half my assets in income-generating funds. I used a demo version, but had it been real, I might have put the recommendations into effect with a few clicks. No pencil work needed.
Just the same, these services also are no panacea. That's why I put together this guide to help you understand what to expect:
-- Do expect the tools to account for more than just your employer's 401(k) or other retirement plan. This is a big advance over some older software. Chances are you have multiple retirement accounts, not to mention a spouse's accounts. To make any rational decision, you have to consider all of them. Some tools even try to account for wealth you may have in a home.
-- Do expect to come away at least with a general sense of how you're doing on the road to retirement. The tools all agreed that if I keep on track and retire at 66, when my Social Security kicks in, I should reach my goals. They all also made it clear that if we hope to retire before 60, I'd better prepare to play Powerball.
-- Do expect some fun. Each service is smartly designed, full of pop-up educational notes and calculators that were clear but not condescending.
-- Don't expect to escape some tedious typing. With links to your employers' records, some tools automate part of the job. But you can't direct them to grab data from outside accounts.
-- Don't expect the tools, despite the hype around them, to leave you fully comfortable. I got reasonable advice, but it all flowed from some heroic guesses. For example, how much will my income grow until 2022? Beats me.
Happily, these services already plan better versions, and rivalry promises to spark fresh approaches: New tools, including one recently announced by Morningstar, are due soon. I only wish that before my career is up, I can stop wasting so much time thinking about retirement.
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