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Retirement Planning Made Easy

Note: this feature is now only available to Quicken customers

"Your plan is not succeeding!" Quicken’s Retirement Planner didn’t let me down gently when it informed me my current investment plan, even combined with other retirement income such as Social Security, wouldn’t fund the annual income I’d said I need when I retire. All was not lost though. With some trial and error, I was able to adjust my plan to bring my expectations in tune with reality.

Retirement planning is something all of us should think about, and Quicken’s planner is free, and easy to use. Select Retirement Home on Quicken’s homepage (www.quicken.com) and then click on and then on Retirement Planner. The planner is a Java program, so it may take some time to download it onto your hard drive the first time you use it.

First, you enter the necessary information, and then Quicken tells you whether it thinks your plan will work or not. Then you’ll probably want to go back and modify some of your assumptions, and see how the changes affect your result. By the nature of the task, the program needs personal data, but the planner doesn’t ask for your name, or for any other unnecessary information.

Each data entry page includes a link to the pertinent section of a retirement planning tutorial. The tutorial provides a detailed discussion describing the implications of each question. It’s very informative and I recommend printing and reading the entire tutorial, even if you don’t use Quicken’s planner. Some of the data you’ll enter requires making assumptions about future events. None of us can predict the future with certainty, so be conservative so that any surprises will be good ones.

Personal Info
The Personal Info page asks for your birthdate, gender, desired retirement age, and whether you smoke. You can enter the same data for your spouse if you decide to include their income in the calculation. Quicken uses this information to calculate your estimated life expectancy. Click "explain" next to the retirement age entry boxes to see a good description of the age requirements related to withdrawing IRA funds, and collecting Social Security and Medicare.

Salary
The Salary page asks for the current level and expected future increases of your salary. Few of us can predict the future, so Quicken suggests you do the estimate based on your raise history, or to be conservative, use the inflation rate, about three percent in recent years. You’re also asked to estimate your post-retirement expenses in today’s dollars. Quicken says, "most retirees can live on 70 to 80 percent of their pre-retirement income," and offers a default estimate of 80 percent.

Economic Assumptions
The third page, Economic Assumptions, asks for your estimated combined state and federal income tax rate. Quicken will calculate a default value based on averages for taxpayers with your gross income in your state. You can determine your actual rate by dividing the total of federal and state taxes you paid last year by the gross income on your tax return. A tougher question is your expected tax rate after retirement. Quicken suggests estimating it to be the same as your current tax rate. You’re also asked to enter your estimate of future inflation. Quicken defaults to three percent per-year based on recent history. Consider increasing that estimate (to six or seven percent) to be on the safe side, since an unexpected increase in inflation can ruin your retirement plans.

Assets
The next page, Assets, asks for the current balance of, and your expected future contributions to your investment accounts. The accuracy of your assumptions of future contributions is critical to the success of your retirement plan.

Enter your expected Social Security and pension plan benefits on the Retirement Benefits page. Quicken can estimate your Social Security payments for you.

Risk & Return
The final data entry page, Risk & Return, asks you to specify pre-retirement and post-retirement required rates of return for your investments (6.5 percent to 11.5 percent). Quicken shows you how to allocate your investments among asset classes such as money market accounts, bonds, and various stock or mutual fund categories such as large-cap, small-cap, and International, depending on your selected return rates. The allocations are based on models that have historically delivered the specified returns with the lowest possible risk.

Results
The Results page gives you the good or bad news—will you have enough money saved when you retire to pull it off? The page also displays detailed information about your projected portfolio each year over the range of your calculated lifespan.

Action Plan
The last page on Quicken’s Retirement Planner is an Action Plan summarizing your plan’s assumptions and detailing your planned savings and suggested investment allocations for the current year.

A Nobel Prize Winner’s Plan
Check out Financial Engines (www.financialengines.com) for a different approach to Web-assisted retirement planning. The site was co-founded by William F. Sharp, a highly regarded investment researcher and winner of a Nobel Prize in Economic Sciences.

You enter similar information into FE’s program as you do for Quicken: age, income, retirement age and required income, and the like. But you also tell FE the specific mutual funds and stocks you currently own.

FE analyzes your current investment portfolio as part of the process of calculating your chances of achieving your retirement goals. By contrast, Quicken simply advised how to allocate your investments among different asset classes without considering the makeup of your current portfolio.

Instead of Quicken’s "go" or "no go" approach, FE forecasts of the probability (e.g. 53 percent) of achieving your retirement goal. FE’s forecast based on your current portfolio is free. For a fee, they’ll give you specific mutual fund recommendations to improve your chances of success. That costs up to $189.95 per year, but you can sign up for a free 30-day trial.

FE’s program takes considerable time to load the first time you use it—about five minutes, even with a high-speed DSL connection.
published 5/7/00

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