Retirement Calculator Evaluation

My primary goal is to provide a useful service to individuals in search of DIY tools for financial and retirement planning and, in effect, to separate the sheep from the goats in the multitude of tools offered over the Internet.  A secondary and more personal goal is to discover the good and the not-so-good characteristics of the offerings in the retirement calculator market and apply that new knowledge to the continual improvement of the Pralana Retirement Calculator.    Stuart C. Matthews, Pralana Consulting LLC

To meet these goals, I’ve identified the following objectives:

  • Evaluate a sampling of both free and paid calculators
  • Present qualitative assessments of the candidate tools using a common scale and a small set of representative retirement planning test cases
  • Present quantitative comparisons between the candidate tools based on representative retirement planning test cases

Disclosure

I am in the business of designing and selling a family of retirement calculators, so I am somewhat biased.  I have tried to maintain my objectivity in doing these evaluations, but it is inevitable that my biases have crept in at some level.  The place where this has probably surfaced in the greatest degree is in the selection of attributes by which the comparisons are being done.

Methodology

I identified three retirement planning test cases, which I think are representative, and ran (or tried to run) all of them against the candidate calculators.  Two of the three (with only minor modifications) came from Darrow Kirkpatrick’s (CanIRetireYet.com) articles on the best retirement calculators and are the cases he used.  Here are the cases:

  • Case 1: A married couple, both age 60, just beginning a 40-year retirement.  They have $1,000,000 in tax-deferred savings, $100,000 in taxable regular savings, retirement expenses of $48,000, combined Social Security (SS) full retirement age (FRA) benefits of $24,000 (today's $) that will begin at their FRA of 66 ($12,000 each), and an effective tax rate of 3.4% prior to the start of RMD's at age 70, and 8.4% thereafter (7.2% overall).  Inflation is 4% and average rate of return on their savings is 6%. 
  • Case 2: A married couple where the husband is age 55 and his wife is 50.  They will live until the man turns 100.  He will retire at age 67 and his wife will retire at the same time at age 62.  They currently have $500,000 in tax-deferred savings and will contribute $30,000 per year (adjusted for inflation) until retirement.  Their retirement expenses will be $54,000 and they’ll have an effective tax rate of 20% during their working years, 4% during their first three years of retirement, and then 8% thereafter (these were measured outputs of PRC which performs detailed tax calculations and reports the effective tax rates).  Each of them have a SS FRA of age 67 with benefits of $12K per year in today's dollars; however, she’ll start drawing her Social Security benefit of $13,449 in future $ (or $8400 in today's $) immediately upon retirement at age 62, but he’ll wait until age 70 to begin drawing his $26,798 in future $ (or $14,880) in today's $) annual benefit.  Inflation is 4% and average rate of return on their savings is 6%.
  • Case 3: A married couple both aged 45 with 2 kids still at home.  They will live until age 100.  He earns $75K and contributes 10% to his 401k, she earns $50K and contributes 10% to her 401k.  Their incomes increase at the inflation rate. The oldest child is just starting college, which will cost a total of $25K (today's $) per year for 4 years.  The younger child will start in 2 years with similar costs and durations.  The parents will pay 100% of the college costs, and the younger child will also cost them $8K per year for the next 2 years prior to starting college. They have a mortgage of $1316/month (PI), with 10 years remaining on the note. Beyond the mortgage and the pending college educations, they have other expenses (excluding taxes) of $50K per year (today's $) which will continue until retirement. They will both retire at age 62, then downsize their $300K home for a $200K home with no mortgage.  Expenses in retirement will be $55K per year (today's $) for the first 20 years, dropping to $45K thereafter. They currently have $250,000 in tax-deferred savings and $75,000 in regular savings.  Their effective tax rate prior to retirement is 21%, then 8% in early retirement, and 13% after RMD's start at age 70 (these are the effective tax rates calculated by PRC with this scenario).  He will have a $50K (future $) pension starting at age 62 with COLA matching the inflation rate, she will not have a pension.  Each of them have a SS FRA of age 66 with benefits of $12K per year in today's dollars. She'll start collecting benefits at age 62 ($16,362 future $), but he'll wait until age 66 ($25,513 future $). Inflation is 4% and average rate of return on their savings is 6%.

I started with the Pralana Retirement Calculator to make sure I had well-defined scenarios and to establish a truth model for the comparisons against all three test cases.  Then, I proceeded to load these into a couple of the other high-end tools that I was already generally familiar with and worked with that small set of tools until I was confident that I was using them correctly and getting representative results.  At that point, I made a preliminary list of calculator attributes that I thought potential users of retirement calculators would consider important.

Then, I went through the complete set of calculators in a methodical manner.  For each calculator, I brought the tool up and followed the guidance offered to load it with first one test case, then another.  I made detailed notes as I went along, including my general and specific impressions, and made my assessment of the tool relative to each of the attributes I’d previously established as important to users.  As my experience with the body of tools grew, I modified the list of attributes somewhat and then revisited and updated my assessments of the tools previously evaluated.

Ultimately, I tried to do a quantitative evaluation of each of the tools, which always included an assessment of the extent to which I felt I (and other users) could verify the results being presented.

If you’ve reviewed my methodology, analysis and commentary and think you’ve found a flaw, I invite you to tell me about it.  I’ll respond to every well-considered and coherently-presented challenge and will strive to correct any errors in a timely manner.  Additionally, I’ll revisit my findings from time to time of my own accord, as well as add additional calculators to the list and maintain current information on the website.

My Findings

This is a major update of the article I first published here in mid-2014.  In the original article, I evaluated about a dozen calculators that ranked high in Google search results and ended up separating those tools into two groups: high fidelity (HF) tools and low fidelity (LF) tools.  This time, I’ve evaluated a larger group of tools. These tools come in all shapes and sizes and with a variety of design objectives, so it is very difficult to do direct comparisons, either qualitatively or quantitatively.  Consequently, I decided to separate the tools into two groups using these criteria:

  • Unique tools for personal financial modeling: The set of tools that give the user a high degree of control over modeling inputs and assumptions and that (at least seem to) provide credible long-term projections while avoiding any pretense of being able to provide a “magic number” for retirement.
  • Typical retirement calculators: The set of simplified tools, typically offered by financial institutions for marketing purposes, that provide a “quick and easy” estimate of retirement income requirements and/or the size of the nest egg required to retire and not run out of money during your lifetime.

The tools within the “typical” category may very well fill the need of many users and should not be disregarded just because they’re simple or affiliated with an organization that may have ulterior motives.  If you can summarize your financial situation with relatively few numbers and assumptions and want to get a quick estimate of whether you’re on track or not, these tools can probably meet your requirements at no cost and with a minimum of effort on your part.  I’m going to list quite a few calculators that fit into this category, but I’m going to refrain from any further elaboration on the characteristics or mathematical veracity of the individual tools.  These tools are typically easy to use, so it’s easy for you to plug your numbers into several of them and do your own comparison of results. Here’s the list of tools I spent some time with and placed in this category:

  • T Rowe Price Retirement Income Calculator
  • AARP Retirement Calculator
  • Charles Schwab Retirement Calculator
  • Fidelity Retirement Income Planner
  • Bankrate Retirement Calculator
  • FINRA Retirement Calculator
  • Vanguard Retirement Income Calculator
  • American Funds Retirement Calculator
  • CNN Money Retirement Calculator
  • MSN Money Retirement Calculator
  • CalcXML

The tools I put in the “unique” category are indeed unique in many ways, with some being simple and straightforward, some doing their modeling with higher degrees of fidelity than others and with varying analysis methods, and others being generalized yet very refined in design with robust feature sets.  One immediate and clear observation was that the term “retirement calculator” does not adequately describe many of these tools, because their designs have evolved well beyond the level I typically associated with that term. So, in seeking a way to compare and contrast them, I defined four subcategories:

  • Retirement Calculator using Fixed Rate Analysis (RC-FR): allows the user to control inflation, rate of return (ROR) or portfolio mix, life expectancy, income and spending; uses the fixed rate analysis method; and may or may not save the user's data
  • Retirement Calculator using Aft-Casting Analysis (RC-AC): allows the user to control the portfolio mix, life expectancy, income and spending; focuses on use of the aft-casting (historical) analysis method; and may or may not save the user's data
  • Personal Financial Model (PFM): Generalized tools with capabilities that not only help retirees and near-retirees but also people with young families that are still facing home ownership, college educations, and saving for retirement, as well as folks weighing the pros and cons of lifestyle changes.  They exhibit these characteristics:
    • saves the user’s data
    • models both marriage partners
    • allows the user to control inflation, ROR or portfolio mix, life expectancy, income and spending
    • allows profiling of income and spending during accumulation and distribution phases, including start ages for Social Security and uses cash flow (income minus expenses) to determine savings contributions and withdrawals during both accumulation and distribution phases
    • performs detailed tax calculations or allows the user to specify a nuanced tax rate
    • provides verifiable outputs (year-by-year tables of income, expenses and account balances as a minimum)
  • Advanced Personal Financial Model (APFM): PFMs with further refinement and extended features, including the following specific attributes:
    • performs detailed tax calculations
    • models taxable, tax-deferred and tax-free accounts separately
    • performs scenario analysis with more than one method (fixed rate, Monte Carlo and/or historical/aft-casting)
    • provides specialized modeling of things such as Social Security optimization, rollovers, loans, and financing of college educations, and/or features that make what-if assessment particularly easy

So, here’s the list of tools that I evaluated and elected to place into the unique category:

  • ESPlanner/Basic (ESP Basic): A free, web-based PFM that models moderately-detailed scenarios and computes optimum sustainable lifetime spending level based on the fixed rate analysis method.  Will save user data for a $40 annual fee.
  • ESPlanner/ESPlanner-Plus (ESP): A downloadable APFM that sells for $149 and models detailed scenarios with extended support for modeling mortgages, college educations and Social Security benefits, and that computes your optimum sustainable lifetime spending level based on the fixed rate analysis method while also making life insurance recommendations; Monte Carlo analysis, upside investing and Social Security optimization features are available for an additional charge.
  • OnTrajectory (OT): A free/low cost ($30/year), web-based PFM that models detailed scenarios and tracks the user’s progress against the plan, illustrates long term projection variations based on the progress inputs and allows users to establish goals and monitor progress toward those goals.  The difference between the free and paid version is the granularity with which income and expense profiles can be defined.
  • Flexible Retirement Planner (FRP): A free, web-based and/or downloadable PFM that models detailed scenarios, including direct input of rates of return or characterization of the user’s investing style (such as aggressive, balanced, conservative, etc.).  Presents an in-depth analysis of Monte Carlo simulation results.
  • MarketWatch/SmartMoney Retirement Planner (MarketWatch): A free, web-based RC-FR with a particularly slick-looking user interface that models simple scenarios (cannot model Test Case 3).
  • Ultimate Retirement Calculator (URC): A free, web-based and very straight-forward RC-FR that models simple scenarios (cannot model Test Case 3); tabular inputs and outputs are easy to understand/use and easy to change to quickly evaluate alternate plans; the webpage associated with URC contains an excellent narrative on the practical use of retirement calculators.
  • Optimal Retirement Planner (ORP): A free, web-based RC-FR that strives to optimize the withdrawals from tax-deferred, Roth and after-tax accounts to meet your retirement spending requirements using several optional spending strategies, and performs a supplementary Monte Carlo analysis on the optimized spending plan.
  • Otar Retirement Calculator (OTAR): An Excel-based RC-AC that sells for $100 and models detailed scenarios (ignoring taxes), including detailed portfolio characterization, and then presents an in-depth analysis of results.
  • cFIREsim: A free, web-based RC-AC that models moderately detailed scenarios (ignoring taxes) with a variety of optional spending strategies, and presents results graphically along with corresponding statistics.  It will also model constant market growth in conjunction with historical inflation rates and provides a supplementary Monte Carlo analysis.
  • Pralana Retirement Calculator/Bronze (PRC Bronze): A free, Excel-based PFM that models detailed scenarios; tabular inputs and outputs are very easy to understand/use and easy to change to quickly evaluate alternate plans.
  • Pralana Retirement Calculator/Gold (PRC Gold): An Excel-based APFM that sells for $99 and models detailed scenarios with extended support for modeling mortgages, college educations and healthcare, detailed portfolio characterization, side-by-side scenario analysis comparisons, rollovers, withdrawal strategy comparisons, interactive sensitivity testing, customizable output formats, Social Security optimization, life insurance recommendations and is capable of computing your optimum sustainable lifetime spending level based on the fixed rate, Monte Carlo and historical analysis methods.

I exercised each of these and attempted to perform both qualitative and quantitative evaluations of each of them, and my findings are presented in the table below.

Calculator Eval Table 2016

Explanation of my evaluation criteria

Inputs easy to navigate and insert

The ease of identifying where to insert specific items related to demographics, income, expenses, assumptions and portfolio definition, the amount of pointing and clicking required, the clarity with which the various fields are defined and the quality of the user error prevention.  This is clearly subjective, but I exercised each tool and rated them on a 1 to 10 scale, with 10 being the easiest.

Outputs easy to navigate and understand

The ease of locating specific items with the tool’s outputs, the amount of pointing, clicking and scrolling required to study the outputs, the clarity with which the various parts of the output are defined and the ease with which the outputs can be interpreted.  This is clearly subjective, but I exercised each tool and rated them on a 1 to 10 scale, with 10 being the easiest.

Tax handling

These tools fits into one of four groups: 1) those that perform detailed tax calculations, 2) those that do tax calculations based on multiple user-specified tax rates, 3) those that do tax calculations based on a single user-specified tax rate and 4) those that ignore taxes.  For further discussion on this topic, I’ll refer you to the Retirement Calculators 303 (Sensitivity of Long Term Projections to the Tax handling Approach) section of my Home Page article on retirement calculator design.

Analysis methods

There are three methods in common use by which retirement planning tools attempt to develop projections into the future: fixed rate projections, Monte Carlo simulations and aft-casting or historical simulations.  For further discussion on this topic, I’ll refer you to the Retirement Calculators 306 (Analysis Methods) section of my Home Page article on retirement calculator design.

Quality of documentation

I defined four options for this category, as follows:

  • Excellent: Has a detailed, well-written user guide/manual along with on-page guidance within the tool
  • Adequate: Contains sufficient guidance within the tool to enable an average user to make effective use of the tool
  • Poor: Poorly-written or insufficient guidance for an average user to be able to make effective use of the tool
  • None: No user manual and only minimal on-page guidance.
  • Separate interdependent modeling of multiple categories of savings

The tool models taxable, tax-deferred and tax-free savings categories with their unique tax characteristics and implements a well-defined or user-controlled policy for modeling the related contributions and withdrawals, including the handling of situations where one or more of these categories become depleted.  For further discussion on this topic, I’ll refer you to the Retirement Calculators 304 (Sensitivity of Long Term Projections to Pooled vs. Separate Savings Accounts) section of my Home Page article on retirement calculator design.

Life cycle model

The tool models all life stages (accumulation phase, distribution phase, and survivor phase) with equal high fidelity while providing computation support for sustaining the maximum standard of living across all stages.  For further discussion on this topic, I’ll refer you to the Retirement Calculators 401 (Life Cycle Models) and Retirement Calculators 402 (Consumption Smoothing) sections of my Home Page article on retirement calculator design.

Support for characterization of income and expenses goes well beyond listing amounts with start and stop dates and growth rates

Examples include modeling of complex income streams, modeling of mortgages, modeling the financing of college educations (529 plans and student loans), calculating Social Security benefits as a function of start age and benefit amount at full retirement age, modeling of rental properties, modeling of changing healthcare expenses from pre-retirement through early retirement to Medicare stages, and detailed checklists of expenses across a large variety of categories.

Derives ROR's from underlying asset classes and asset allocations

The tool allows the user to characterize the portfolio associated with each category of savings as opposed to the simple entry of an expected rate of return.

Provides verifiable outputs

The tool provides tabular outputs containing sufficient information to enable the average user to determine that his or her inputs have been correctly interpreted and modeled, and to follow the translation of those inputs into intermediate results and the ultimate projections being produced.

Models case x and matches PRC/Gold within 10%

I’m confident of PRC/Gold’s math and therefore used it as the standard.  I tried to set up each test case in the other tools and then compared the final savings balances or the total spending produced by the tool under test to the values produced by PRC/Gold.  Neither of the aft-casting tools (cFIREsim and OTAR) model taxes and they generally don’t operate in a manner that facilitates this type of head-to-head comparison, nor do they produce user-verifiable results.  Consequently, I have no basis for confirming their mathematical veracity.  Any other tool that doesn’t match PRC/Gold to within 10% appears to contain some mathematical error(s) or simplification that causes significant deviations.  The tools with check marks in this row actually matched PRC/Gold more closely than within just 10%; I set the range at 10% to illustrate that the others were off the mark by more than just some insignificant amount in the tests I performed.

Conclusions

DIY tools for retirement planning, in particular, and personal financial planning, in general, come in lots of different forms and vary from simple to elaborate.  There is definitely not a one-size-fits-all solution out there.  For someone who just wants a quick and easy estimate, there are many adequate tools to choose from.  For someone who wants to invest some time delving into the details, saving the inputs, doing what-if’s, quickly comparing alternatives, and revisiting and updating those inputs and the corresponding projections on a regular basis, there are fewer choices, but some good tools available.  Some of the free tools are perfectly capable of doing detailed, high fidelity projections, but you may have to pay a few dollars to get a high-end tool with additional features.  In the final analysis, I think you have some good options to choose from.

Pralana Consulting LLC, Plano, TX

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