Best of the lot focus on tradeoff strategies to meet income goals; wildly different answers a worry, however
The good news about retirement income planning tools is that they are much improved. The bad news? The answers they provide tend to be all over lot.
In the past, online tools available to consumers — and even more sophisticated versions available to advisers — mostly focused on a single dollar amount that a client needed to accumulate to live comfortably in retirement. In same cases, they tabulated a hypothetical replacement rate to cover essential retirement expenses.
“The full-service tools available through both large and small broker-dealers are getting much closer to meeting people's needs,” said Chris Brown, a principal with Hearts & Wallets, which conducted a recent survey of 22 firms and ran hypothetical scenarios through 27 retirement income planning tools.
“The best tools allow people to measure the odds of success and look at the trade offs,” Brown said. For example, a good tool lets you model how taking Social Security early rather than later would affect a couple's retirement income goals or what would happen if they worked a few years longer.
And it's not just the tools that are getting better. Some broker-dealers are hiring Social Security and tax experts — people who had worked at the Social Security Administration and the IRS — to provide expertise in their home offices and to support advisers in their networks. Insurance companies and mutual funds are also stepping up training efforts to support their new retirement income products.
“I think we're getting closer to where the advisers need to be in terms of the necessary training and support,” Brown said.
Still, there are cases where recommended solutions vary widely. For example, using a hypothetical couple who just happened to be named Bernie and Roz (after the Dustin Hoffman and Barbara Streisand characters in the comedy “Meet the Fokkers”), estimates of the couple's first year income from Social Security were all over the lot. They ranged from a low of $42,144 from Fidelity's Income Planner tool to more than $70,000 from some of the more sophisticated claiming strategy tools available to advisers.
While many advisers are stuck with the tools that their broker-dealer provides, independent advisers have more flexibility to choose their own. Brown says they should look for tools or vendors that offer clear and meaningful displays to communicate the information to clients. “You want to be able to talk to your clients about the odds of meeting their goals and the trade offs they might have to make to get there,” he said.
