Drawbacks of Retirement Planning Software | Retirement Planning

Retirement planning software has been known to be a useful tool for people to come up with retirement plans. With the help of the software, one does not need to figure out all the details needed to be included when considering a plan as the software will ask the questions related to any retirement planner will ask, just without the need to pay for the planner?s services. Despite that, there are actually a number of drawbacks of using this software, especially when soon-to-be retirees begin to rely solely on it to come up with their decisions.

First of all, the rates of return are not very realistic. In fact, they tend to be very optimistic by default, or they allow the users to overestimate their investments. Furthermore, they tend to neglect the possibility of having an investor who does not have experience in investing, where mistakes are very likely, so the returns do not end up as much or close to as they should as predicted by the software.

Secondly, in the software?s formula, things like fees, taxes, and inflation are usually not accounted for. Fees can include the fee for calculating the retirement investment, so the overall returns given by the software will usually be higher than in reality. While taxes and inflation are included to a certain extent, different software will have different rates of tax and inflation, where some can account for very low probability of facing tax or inflation, whereby once again, overestimating returns.

Apart from that, the retirement planning software has drawbacks where life expectancy is concerned. Some software can have a standardized length of life expectancy; some may have a standard age; while others may ask you to predict your own life expectancy. The thing is, life expectancy is a difficult variable to predict, and there are actually problems when one lives shorter or longer than the life expectancy as recorded, where you may end up skimping for returns during your retirement, or overspend due to the assumption that you have enough returns to use. This can be avoided using software that includes demographics and health risks into their formula.

One of the greatest drawbacks of the software is the fact that it cannot account for life events, such as earlier-than-predicted retirement, a sudden diagnosis of a health problem, or the passing of a spouse. These factors can cause the numbers to change greatly. Other drawbacks include the lack of or inaccurate calculations of social security benefits, and the varying home equity treatment of different software. In conclusion, the software should only be used only as a guide, but not a determinant of your retirement plans investments.

Read more details about related topics retirement planning software and retirement calculator.

Source: http://phonesb.com/retirementplanning/drawbacks-of-retirement-planning-software/

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