The Little Financial Engine That Could (But Only If You Use It)
November 17, 2011I’ll let you in on a little secret from my days as a financial adviser. When you sit down with an adviser, they treat you really well, laugh at all your jokes (even if they’re not very funny), and ask you some questions about your current financial situation and goals for the future. Then they put all that information into a software program that calculates some projections, and may even make some recommendations. Guess what they do with that information? They charge you a fee for it or use it to sell you something.
Now, more people than ever have direct access to that type of financial planning software. In fact, some of our client companies offer a particularly good software program called Financial Engines to their employees for free. It uses Modern Portfolio Theory to provide specific investment recommendations for your retirement plan that incorporate what you have on the outside. For example, if you have lots of stock in an IRA, you may not need as much stock in your 401(k) plan.
It can also put together all your investments (both in and out of your retirement plan), your pension, and your Social Security benefits to see if you’re saving enough to retire when and how you’d like. If not, you can experiment with different scenarios like retiring later or saving more and see how contributing more to your retirement plan would affect your take home pay. It also continues to monitor and update you on whether you’re on track.
In short, the software is pretty cool. In many ways, it’s actually better than anything I’ve seen for advisors. However, when I do retirement workshops and ask how many people use it, usually at most, only one or two people raise their hands. This is especially surprising given that our research shows that retirement is the #1 employee financial concern and only 14% of employees know they are on track to retire. Yet, of those who don’t know that they’re on track to retirement, 78% have never done even just a simple retirement calculation to see where they are.
If you’re one of the vast majority who has never run a retirement calculation, why do you think that is? Does retirement seem too far away to think about? Is your employer not doing as good a job as they could to let you know what resources are available? Is the software too complicated? Do you distrust it? Are you just too busy?
Feel free to share your thoughts in the comment section below.