Relying on tools to assess retirement readiness could be a big mistake—or not. It depends on the tools.

That's according to a report from researchers at the department of personal financial planning at Texas Tech University, which found that many retirement planning tools fall short in ways that could have a serious impact on the person seeking to retire.

The researchers evaluated 36 different publicly available retirement planning tools, and concluded that not only are "households … likely overestimating tool effectiveness," but "the advice provided from a majority of these tools is extremely misleading to households…."

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Many households resort to publicly available retirement planning tools because of doubts over the trustworthiness of actual human advisors and/or the cost of seeking professional advice.

But relying on such publicly available tools can present its own set of problems, in part because of households' misconceptions about them and in part because of inefficiencies or biases built into the tools themselves.

Households may assume that tools are "trustworthy because they come from third-party sources, or that they are cost effective since they may significantly reduce search cost."

But among the "dozens" of publicly available tools, said the report, "The variation of tool inputs and default settings invites the question: Which demographic, financial, and economic inputs, including their default settings, are necessary for [publicly ]available retirement planning tools to provide an appropriate recommendation?"

In their research, the analysts looked for three different factors among the tools tested:

  • the relevance of the advice provided to households using these tools

  • the risks households face in using those tools

  • the critical data tool developers need to convert existing tools into more valuable guides

In its conclusion that tools aren't necessarily all they're cracked up to be, the analysts supported the opinions of "[c]onsumer bloggers and members of the financial planning press who have more closely examined and compared retirement planning tools [and] are generally critical of the available tools"—and backed up their opinion with plenty of research and specific examples of how such tools fall short.

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