Interactive financial calculators, long a staple of defined contribution plans, have evolved from a collection of numbers that yield a lump-sum accumulation to a detailed analysis of retirement spending that counts more than a participant's DC plan balance.
Independent research and surveys by record keepers show the calculators can change participants' attitudes about retirement savings and, more importantly, can influence actions. One reason, providers say, is that modern calculators aren't buried in hard-to-find places on company websites. Instead, they are often prominently placed on 401(k) home pages where participants can review their accounts and easily make changes.
These Internet-based calculators embrace a broader view of income sources as well as of potential expenses to help participants plan their retirement on a monthly basis. Outside investments, defined benefit plans, IRAs, Social Security and even health-care costs are part of the calculations.
“It's not about accumulation,” said Edmund Murphy III, head of defined contribution services for Putnam Investments, Boston. “It's about spending in retirement.”
Putnam, which began offering a retirement income calculator to clients in January 2010, started rolling out an updated version in December that also allows participants to incorporate estimated health-care costs. “You can't do comprehensive retirement planning without taking into account the cost of health care in retirement,” Mr. Murphy said.
Although its initial research involves a very small sample, Putnam found that 800 participants used the health-care-cost component to experiment with different deferral scenarios. Of that group, 30% increased their deferrals to an average of 11.3% of salary from 8.1%, Mr. Murphy said.
The newest calculator includes information about insurance premiums, out-of-pocket expenses and the state where a future retiree plans to live, as well as projections of costs as a person ages. That information is added to the data — salary, account balance, corporate match, Social Security, etc. — in Putnam's original retirement income calculator.
Using a lifetime income calculator “makes people estimate how much they need over time,” said Helene Sanford, director of compensation and benefits for Intersil Corp., Milpitas, Calif. “It takes a big number and makes it manageable.”
Intersil's $330 million 401(k) plan started using Putnam's retirement income calculator in January, and added the health-care portion in March. Adding the health-care cost component already has “made people aware of health care,” Ms. Sanford said.
The University of Michigan, Ann Arbor, offers financial calculators to participants in its two 403(b) plans with aggregate assets of about $9.8 billion. Each of the school's two record keepers — Fidelity Investments, Boston, and TIAA-CREF, New York, provides a “comprehensive and thorough” calculator, said Steve Sindlinger, assistant director in the benefits office.
These calculators enable participants to incorporate outside income sources like IRAs and investments so they can “take a holistic approach” to their retirement savings, Mr. Sindlinger said. “It helps the participants become more engaged.”
“Many individuals want to do more (financial) modeling on their own time and on their own terms,” he said, adding that the calculators allow them to do so.
In January, Fidelity began offering its Income Simulator, the latest upgrade and evolution in calculators that the firm has had for about 15 years, said Thomas McGirr, senior vice president of participant products for Fidelity Workplace Investing, Smithfield, R.I.
This calculator lets participants incorporate assets from outside sources, including defined benefit, IRAs, Social Security, taxable investments, household savings and health savings accounts.