Research has revealed most retirement calculators produce incorrect advice, causing people to retire with too little – or too much. Advocates are calling on the government to do something about it.
Data from Super Consumers Australia (SCA) shows almost eight out of 10 retirement calculators – used by financial planners and the public alike – produce inappropriate guidance for a given individual.
SCA found 77 per cent of calculators recommended either a default income in retirement that is too high, meaning money runs out before life expectancy, or too low and people end up dying with many thousands still in the bank.
Online retirement calculators are mostly operated by superannuation funds, with the exception of the Australian government’s Moneysmart planner. SCA CEO Xavier O’Halloran says such an important tool can’t be left in the hands of super funds, who have no real incentive to ensure they are accurate.
“Planning for retirement is too important to just leave to super funds with a track record of poor-quality guidance,” he says.
“Our findings cast doubt on whether super funds have the capability to provide quality tools and guidance to help their members plan for retirement. With more people approaching retirement either renting or with a mortgage, calculators can’t assume everyone owns their home.”
What did they find?
SCA tested the calculators of 22 of Australia’s leading super funds on what assumptions were used to calculate income projections (eg. life expectancy and spending needs of the person using the calculator) and how income projections and any other information were presented visually.
They found most calculators relied on arbitrary assumptions about a person’s spending needs that resulted in a retirement income estimate that was not reasonable for the estimated retirement balance of our scenario (either too high or too low).
For example, most calculators didn’t account for retirees who still had a mortgage or for the higher spending needs of renters. Most calculators didn’t explain minimum withdrawals of superannuation or have a budgeting tool incorporated into the calculator.
They also found huge variations between the different calculators, which in some cases varied by as much as 74 per cent ($29,928 versus $52,000 per year) even though the same assumptions had been inputted.
A difference like this would be the difference between living a comfortable retirement and living close to the poverty line.
How do we fix it?
SCA is calling on the government to update and extend its existing planner and eventually turn it into a ‘one-stop-shop’ that people can turn to for free retirement planning guidance.
They suggest this facility would eventually be not just a retirement calculator, but a digital service able to provide quality, impartial guidance, with in-person or phone-based support.
Essentially, they’re asking for retirement planning and projections to be taken out of the hands of the super funds.
“The first step in delivering this one-stop-shop is for the government to task an independent body to review and connect up the existing suite of government-provided retirement planning assistance services and tools through a single portal,” the report reads.
Did you use a retirement calculator to plan your retirement? Would you support more comprehensive government retirement planning? Let us know in the comments section below.
Also read: Simple habits that can boost your retirement confidence
Although I checked out on line calculators, I created my own budget spreadsheet for both short term (annual) budget and a long term (to age 100) budget. It allows me to input what I’m spending today with the ability to set what I believe inflation could look like long term plus include every other expense (although I no longer have a mortgage @ 71) in the year I anticipate major occurrences to occur (think new car/new roof). It also includes the ability to include income increases based on inflation and taxes to be incurred.
Not something that everyone can do but allows me to see MY plan (and to work my plan) while keeping my mind active.
I’ve done the same, started 10 years ago. Use a spreadsheet and work out each year going forward using some assumptions of course. Been working well, nothing is accurate because the future is never certain, but it gives you a good idea of where you’re going, and after 10 years can see that we’ve ahead by $80,000, which is the best way to be.
Sorry, but I don’t think government has the answer to any problem, and I sure don’t see benefit in taking private entity competition out of the market (yet again!) and implementing government control. It hasn’t worked anywhere else.
I like using the InvestSmart Retirement calculator.