A recent study puts into question the outcomes of retirement calculators. "Misleading," "over-optimistic" and "little help to consumers" are conclusions reached by researchers for the majority of online calculators tested. That’s bad news!

Online calculators and apps are popular with consumers planning for their retirement. For many, these calculators are a quick and easy way to determine how much they need to save during their pre-retirement years or the lifestyle they can afford after they retire. But are these online tools providing accurate results?

Can You Trust the Calculator?

Thirty-six widely used online calculators were evaluated by a team of researchers from Texas Tech and Utah Valley universities. All of the free or low-cost tools included in the survey are readily available to the public either through large financial institutions (AARP, Fidelity, Vanguard, and TIAA-CREF) or media outlets (Bankrate, Kiplinger, Yahoo, MSN).

The study looked at the advice that the various calculators provided for a hypothetical couple in their late 50s with family income of $100,000 and aiming to retire at ages 65 and 63. While utilizing the leading software designed for use by professional financial planners, the researchers concluded the couple was not adequately prepared for a financially secure retirement. This conclusion was then compared to the advice provided by the online tools. 

Warning: More than two-thirds of the online calculators incorrectly indicated that the hypothetical couple was adequately prepared for retirement! 25 out of 36 got it wrong!

"When you have tools that say you are in great shape when professionals feel you may be in trouble, that can be dangerous," according to Harold Evensky, a professor at Texas Tech University and one of the researchers conducting the study.

What’s The Problem?

The research pointed to two issues that reduced the ability of the online retirement planning tools to provide results similar to the professional financial planner. The limited amount of personalized data required for the analysis and the inconsistent internal assumptions used by the calculator were both noted as problematic in achieving acceptable results.

In order to keep the calculator simply to use and appealing to the consumer, the amount of information required is generally limited to a few factors. It was the opinion of the researchers that at least twenty different factors were necessary to provide sufficient data for an appropriate conclusion. Factors that generally were not required by the online calculators included personal tax rates, personal health and family mortality history, distributions from savings prior to retirement, and taxable versus non-taxable savings vehicles. Based on their results, the calculators lacked sufficient user input to provide an accurate and relevant outcome. 

The internal assumptions used by the online retirement calculators, such as investment performance, inflation, and longevity, varied greatly. Obviously, an incorrect assumption in any of these areas would significantly impact the outcome. An example would be the use of an inappropriate investment return. Your results would be meaningless if the online calculator assumed the investment returns of a moderate risk portfolio when your portfolio reflected a more conservative characteristic.

Value of Online Calculators: Use for Guidance

Given the outcome of this research, the best way to use any online tool is for guidance only. To enhance your understanding of your situation, use more than one calculator and compare the results. If there are significant differences, give as much weight to the pessimistic outcomes as you do the optimistic ones. 

While calculators can be great tools and timesavers, remember there are a multitude of considerations when seeking long-term financial security. The following are a few of the important factors that must be considered:

  • Personal tax rate versus average rate applied by calculator
  • Tax character of your retirement savings, i.e. tax-deferred IRA; tax-free Roth IRA; taxable brokerage
  • Specific cash flow needs in addition to living expenses
  • Out-of-pocket health expenses
  • Timing of Social Security benefits

Do not make the assumption that a simple calculator can consider all the various aspects of your personal situation.


The study did not identify the online calculators (11 out of 36) that accurately assessed the retirement prospects for the hypothetical couple. However, a stated goal of the research is to encourage the providers to make the necessary changes in order for their calculators to deliver a more accurate analysis.  In the meantime, if concerns regarding the online calculators make you unsure about your prospects for retirement, it may be time to seek the advice of a human! 

Contributions were made to this article by Ryan Jeffries, CFP, Manager of Financial Planning at Bedel Financial Consulting, Inc.

Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment.  Elaine’s book, "Advice You Never Asked For… But wished you had," is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at ebedel@bedelfinancial.com.

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