Planning at Your Fingertips
To get a retirement plan from a professional adviser, you can spend upwards of $1,000 for all but the simplest version, and hundreds more a year for updates. But if you're comfortable with the three C's -- computers, calculations, and (financial) concepts, you can use planning software at a fraction of the cost.
You'll learn a lot from playing with the software, since the better programs let you experiment with a range of scenarios and update your plan whenever you choose. The downside is that "retirement planning is a complex process, and there is no perfect program," says Eric Sondergeld, director of retirement research for LIMRA International, a consulting firm based in Windsor, Conn.
Sondergeld reached this conclusion after heading up a 2002 study sponsored by LIMRA and the Society of Actuaries (SOA). The study analyzed more than a dozen planning programs designed for consumers. Among the defects it found: Programs failed to factor in home equity when evaluating retirement assets or assumed users could make intelligent guesses about how long they'll live or future inflation rates.
The basic goal for all the programs is the same: To create a plan that'll generate enough income to support you for the rest of your life. Where they differ is in their approaches. Some require detailed estimates of your current and future expenses, while others simply ask you how much income you will want to live on.
Since the study, some titles are no longer available, and new ones have appeared. To identify the better ones on the market, I conducted my own review of downloadable programs (some of which come in CD-ROM versions) that were both comprehensive and easy to use. I found four worth considering. Here they are in order of my preference.
-- Retirement Planner 2003 (torrid-tech.com; $39) lets you plug in and retrieve lots of useful information very, very quickly, using four colorful, interactive screens. The "retirement savings" screen requests your current and expected retirement ages, data on your tax-deferred and taxable investments, and estimates of future Social Security and pension income.
This produces spiffy graphics that demonstrate exactly how your savings would wax or wane year by year, for the rest of your life under varying assumptions such as the returns on your investments. An equally vivid second screen, based on the same data, shows your potential annual retirement income on a similarly interactive graph. Two other screens are spreadsheets that track your savings, income, and progress toward your goal and let you keep records of your investments. The "settings" button helps you estimate your Social Security and pension income, and navigation in general is smooth.
The negatives are that the program can neither factor home equity into calculations, nor create separate financial tracks for each member of a couple. But it's useful if you want to see, quickly and dramatically, whether your current retirement plans will take you anywhere near your ultimate financial goal.
-- ESPlanner (esplanner.com; $199 for basic version) gives the most flexibility in figuring retirement income and expenses and is the most comprehensive. But if your finances are complex, it could take hours to complete your plan.
Like most programs, it includes Social Security, pensions, 401(k)s and individual retirement accounts, and other investments in estimating income. Much to its credit, it also factors in real estate -- the biggest asset for many. It asks for the current value of the equity in your primary and vacation homes and analyzes the implications of selling any of these or of relocating to another state. It also helps you understand how "special expenditures," such as a wedding or college, might affect your retirement stash.
I had to use a beta version of ESPlanner, and had quite a few problems with navigation. The developers say they expect a bug-free version to be available on Sept. 1. ESPlanner Plus -- which includes "Monte Carlo" simulations that offer financial guidance based on the probabilities of different scenarios before and during retirement -- costs $249.
-- WealthWhen (wealthwhen.com; $99.99) allows you to manipulate a vast amount of financial data to generate up to five financial scenarios for retirement. Based on your personal information and on your assumptions about 12 economic factors, such as inflation and investment returns, the scenarios offer year-by-year income estimates.
This program is for green-eyeshade types who have the patience to enter lots of data and continually update the numbers. The program comes with a printed manual and an easy-to-use help section.
-- Retirement Planner FastAnswer (villagesoft.com; $69.95) is a Microsoft Excel spreadsheet program that treats your total retirement income, including potential home sale proceeds, as an annuity. By adjusting for different inflation rates, investment returns, and payout scenarios, you'll see how long your "annuity" lasts. It lets you work out IRA withdrawal options and compare the effects of taking money out of retirement accounts as a lump sum vs. installments.
The program has kinks. The "help" information is on one screen instead of linked to a question. Click on the "clear data" button, and you erase all your inputs, not just what's on that page. Some screens lack a menu button, so it's hard to return to a previous section. If you want to add detailed 401(k) income calculations, you'll need to spend $69.95 for 401(k) Forecaster FastAnswer.
Whatever program you use, watch out: You may convince yourself you've got definitive answers to your retirement questions when all you've got are educated guesses. Still, that's all you may wind up with even if you pay a planner a whole lot more.
By Ellen Hoffman