Trials of 5 financial calculators find them useful, flawed

Last year's stock market free fall has left a lot of folks wondering whether they'll ever be able to retire. But assuming you don't want to work until you drop, is it possible to get back on track?

The average 401(k) plan balance fell 27% in 2008, according to Fidelity Investments. If you're in your 20s, you've got plenty of time to recover. If you're in your 50s, though, you may be wondering whether it's time to develop a taste for Fancy Feast.

But is it really all that grim? We tested several online retirement calculators to find out what a fictional 50-year-old couple saving 10% of their salaries (see box) would need to do to get back on track. We also asked Financial Engines, which provides investment advice to 401(k) plan participants, to analyze their situation.

While a retirement calculator can't replace an experienced financial planner, it can provide a general idea of where you stand and what you need to do.

"The positives still overwhelm the negatives," says Sheryl Garrett, a financial planner in Kansas City, Mo. Calculators may not provide perfect projections, she says, but they help people spend more time looking at their long-term goals and making adjustments along the way.

Here's what we found, and the pros and cons of the calculators we tested:

Principal Financial Group

Principal Financial designed a calculator to help 401(k) plan participants figure out how long it will take them to recover from last year's losses.

In our test drive, it would take the husband and the wife about five years to rebuild their 401(k)s, assuming an average investment return of 4%. That's not a bad result for a couple still more than a decade from retirement.

But keep in mind that all this calculator does is tell you how long it will take you to recover from your 2008 losses. It doesn't tell you whether that will be enough to live on when you retire. The calculator doesn't ask you how much of your pre-retirement income you want to replace, how long you expect to live, or whether you'll have other sources of income in retirement.

The calculator does suggest how much you need to increase contributions to speed the rebuilding process, but that's about all the guidance you get. And that's pretty much the point: Principal says the calculator "is a starting point for a discussion with a financial professional/adviser about your plans for retirement."

Finding: Five years to recovery


This is a much more comprehensive calculator that takes into account a number of factors, including inflation, the amount you expect to receive from Social Security, life expectancy and whether you want to leave an inheritance. Fat chance.

In our test, the fictional couple came up far short of their goal of retiring at age 62 and 63 with 70% of their pre-retirement income. Specifically, the calculator said the couple would have a shortfall of about $280,000 unless they upped their savings to $2,935 a month, or 25% of their income. (This was based on a life expectancy of 90 for each spouse; a longer expectancy would widen the gap.)

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