Although they have hitches, these packages are surprisingly good for basic planning.
Most professional retirement planning software packages do a competent job, but they are time consuming. Sometimes, either because the client can't afford it or because a prospect doesn't justify it, the advisor is limited in what he or she can offer. It is at those times that professionals crave a fast, easy-to-use retirement application. They don't necessarily expect this type of program to create the perfect, detailed plan, but they do expect it to advance the client's progress towards a retirement goal.
Let's examine two programs that promise quick and easy results: OppenheimerFunds Retirement Income Manager 2.0 and Retirement Savings Planner from Torrid Technologies, Inc.
OppenheimerFunds Retirement Income Manager 2.0
When I first covered OppenheimerFunds Retirement Income Manager (RIM) in my October 2005 column, my initial impression was favorable. OppenheimerFunds, to their credit, was one of the first firms to offer advisors a simple, stand-alone, Web-based retirement income planning application. Best of all, it was free.
Many who tried the program liked it, but soon they requested additional features. These requests led to the recent release of RIM version 2.0. According to John M. Davis, vice president of retirement plans at OppenheimerFunds Inc. "We tried to keep version 2.0 simple on the front end so that advisors will be encouraged to use it with more clients. At the same time, we tried to make the program more sophisticated at the back end." I decided to take a look to see how successful OppenheimerFunds was at meeting those goals.
Overall, I think they've succeeded. While the program does some sophisticated calculations behind the scenes, including a 2,000-iteration Monte Carlo simulation, the interface remains accessible.
This version addresses a number of criticisms I leveled at version 1.0. In the area of withdrawals, advisors now have the ability to differentiate between four pools of assets (qualified, nonqualified, tax deferred, tax free) and to designate the order each of those assets will be spent at the client level. RIM 2.0 is smart enough to start taking required minimum distributions (RMD) from qualified plans and traditional IRAs when a client turns age 70.5, regardless of the distribution order the advisor designates. This is something the earlier version could not do.
The initial version had very limited portfolio construction/asset allocation choices. Version 2.0 is much better. This version's default model portfolios are comprised of up to eight asset classes (U.S. large cap, U.S. mid cap, U.S. small cap, International, bond, money market, REITs and real assets). Depending on your client's risk tolerance, the program will recommend allocation to as few as four or as many as eight asset classes. In addition, the application will most likely recommend shifting the portfolio gradually to a more conservative stance as the client ages. For example, an aggressive couple might have close to 100% invested in equities upon retirement, then scale it back to 65% at age 77 and further scale it back to 50% at age 82. Better yet, advisors can now totally customize the allocations to each asset class, so if they want to adjust the weightings it only takes a minute to do.
RIM now offers users the ability to model primary residence as a retirement asset. Users can classify the primary residence as a use asset until death, as an asset that can be sold to finance retirement or as an asset to be borrowed against through a reverse mortgages. The reverse mortgage-modeling tool conforms to FHA guidelines, so it is capable of illustrating a lump-sum cash inflow or a fixed annual one. It will take into account closing fees, loan origination fees and annual servicing fees, if any. In addition to the primary residence, advisors can now model and include investment real estate in the plan. Other enhancements include the ability to designate an emergency fund and the ability to compare three scenarios side by side.
Version 2.0 offers enhanced preretirement modeling. Now, advisors can begin the retirement income planning process with clients ten years before they retire, hopefully giving advisors the chance to impact client decisions while they are still in their prime earning years.
With all of these additions, you would think that the interface might have suffered, but it hasn't. The core functionality of RIM 2.0 requires only five screens, just as the previous version did. Of course, if you want to use some of the customization features or the optional worksheets you will end up visiting additional screens, but even if you do the whole process is intuitive and fast.
There are some minor annoyances. If you add a spouse, you have to remember to check the "include spouse in calculation" box. I'd prefer to see the box checked by default, giving advisors the opportunity to uncheck it. You still have to save the pages manually. I think a better option would be to save by default, or at least to ask if you want to save when you leave a screen.
The program still does not automatically account for state and local taxes, although you can enter an approximation manually. Some of the error messages are undecipherable, so if you leave something out or if you make a mistake you can't always determine what the problem is.
The printed reports, while an improvement over the initial version, still waste too much paper, largely due to disclosures, disclaimers and explanations. One sample plan I ran generated a report of 25 pages. Of those, less than ten represented the core plan. Some of the rest was valuable educational material, but most of it was disclosures that most clients will never bother to read.
While some will undoubtedly criticize RIM as a planning lightweight, it does, in a matter of minutes, provide useful output. The fact that it is free only adds to its appeal. Given the fact that most baby boomers are woefully in need of fundamental retirement income planning advice, Retirement Income Manager Version 2.0 can fill a real need. If you are looking for an inexpensive, easy to use retirement income planning tool, contact Oppenheimer Funds and take RIM version 2.0 for a test drive.
Retirement Savings Planner From Torrid Technologies Inc.
In contrast to RIM, which is Web-based, Retirement Savings Planner (RSP) from Torrid Technologies Inc. (http://www.torrid-tech.com/) is desktop software. It can be downloaded from the Web and installed on any modern PC. The program was originally designed for consumers, and the firm still offers two consumer-oriented editions. The personal edition is designed for plan participants and other individuals. The couples edition allows individual data entry for each partner and provides a total picture of the couple's retirement outlook. The professional edition, our primary focus today, allows advisors to enter and save an unlimited number of "couples" files. The professional version sells for $699; upgrades are $279.
Like RIM, one of RSP's most endearing features is ease of use. When you create a new client file, you enter personal information such as name, address, Social Security number and date of birth. You can even include a client photo. The date of birth is used to calculate the age of the client on the main screen.
Other personal information can be entered right into
the main screen at the bottom. If I want to change the retirement age
from 65 to 67, I would just click on the field and enter the value I
desire. As you can see, very little data is required to create a basic
plan. You need income, current account balances and estimated future
savings, projected Social Security benefit and any pension income
expected. As you enter data, the graph refreshes to enter the new
The Social Security portion of the program is well conceived. You can enter your own estimated benefit, or the program will calculate a benefit based upon inputs you provide on a separate screen. If we were planning for a couple, there would be a tab between the "John" tab and the "other assumptions" tab to enter the spouse's information.
The "other assumptions" tab is where you enter the retirement income goal, estimated inflation rate, end date (the date the primary client dies), tax rate preretirement and tax rate postretirement.
Once the data is entered, you can get a projection for any point in time by dragging the red line in the graph. As you move the marker from one year to another, all of the projected balances for the year in question are displayed. Those requiring all the underlying cash flows can click on the spreadsheet button to the right, and the details will be revealed.
If you want to enter additional details, you can use the buttons to the right of the screen to do so. For example, you can select the investment button and enter individual holdings, each with their own projected rate of return pre- and postretirement. Once you are done, you click the "enter totals on main screen" button, and the totals are transported to the main screen. If you wish to enter additional cash inflows or outflows, you hit the appropriate button to enter all the details. For example, if you anticipate an inheritance at age 70, you can list the year, duration, growth rates of the asset, tax status of the inflows, etc.
Retirement Savings Planner has a number of appealing features. First and foremost is ease of use. Most data entry takes place on two screens, yet with a few additional mouse clicks, you can add numerous refinements to the plan. The graph updates as you work on the main screen, which I like. The Social Security benefit estimator is something many professional programs, including RIM, fail to provide.
Torrid Technologies offers an excellent series of video tutorials (about 20 minutes in total) that should get just about any professional up and running with the program, another plus.
On the other hand, there's ample reason to avoid RSP. The primary concern is its reliance on straight-line calculations. This program takes each "bucket" of money (taxable, tax-deferred and tax free) and inflates them at a constant rate. We all know that this is not the way clients realize returns in the real world. In the real world, returns vary over time, sometimes dramatically.
We also know that in the retirement years, the order of returns can be just as significant as the rates of return. That's why Monte Carlo analysis, or some other probability measurement, has become standard in almost every professional retirement planning package. Unfortunately, RSP fails to provide any perspective on investment risk. I admire the simple interface, the graphs and the overall program layout; however the screens themselves look a little dated. This is not a critical deficiency, but it is noticeable.
While this review is concerned primarily with RSP as a professional tool, I'd be remiss if I did not point out the pitfalls the general public might encounter using the personal or couples edition. My primary concern here is that an uninformed consumer could overestimate rates of return and/or underestimate expenses during retirement. This could be disastrous. Without some constraints on the consumer editions, and without some representation of risk, I find the consumer editions more troubling than the professional one.
The bottom line of RSP is that it has potential, but it needs to move beyond straight-line return calculations if it is to be taken seriously by professionals. With the addition of probability analysis, or some other representation of worst- vs. best-case scenarios, RSP would be a more palatable choice for consumers and professionals alike.
If you are looking for a quick and easy retirement income planning program today, the Oppenheimer Retirement Income Manager is the better choice. It is more sophisticated, it addresses portfolio construction/asset allocation, it employs a Monte Carlo simulation to address the probability of various outcomes, it attempts to address longevity and it is free. I think RIM could do a better job of estimating Social Security benefits, but it spite of that shortcoming, it gets the nod over Retirement Savings Planner.
Joel P. Bruckenstein, publisher of
Virtual Office News (www.virtualofficenews.com) and an expert in
applied technology for financial services professionals, can be
contacted at [email protected]