Research from LIMRA Secure Retirement Institute suggests that “Do-It-Yourself” retirement planning may not garner the best results. The study found that 44 percent of pre-retirees and retirees do not engage a financial professional when preparing a financial retirement plan. Of those 50 percent say they can do it “just as well (or better) on their own.”
But can they?
The Institute found when it came to determining their income in retirement and how long their assets would last, nearly 80 percent used an online tool or manually calculated using a pen and paper. One in four “do-it-yourselfers” simply guessed (chart).
The popularity of online tools is growing but they often lack the sophistication of planning tools used by financial professionals. A recent study of 12 online retirement calculators by Corporate Insight found monthly income projections by these calculators varied 60 percent.1 An earlier study by Texas Tech University and Utah Valley University determined the results from many of these tools “extremely misleading.”
Relying solely on these tools can leave people at financial risk during retirement. There are many factors, including health care, long-term care, market volatility and interest rates that can have a significant impact on a household’s retirement income.
The Institute’s study reveals that DIY pre-retirees are less confident that they are saving enough for retirement. DIY pre-retirees and retirees are less confident that they are prepared for retirement and less confident that they will be able to achieve their retirement lifestyle goals, compared with those who worked with a financial professional.
One might expect that DIY consumers would be more interested in using automated or robo-advice platforms to manage their retirement savings. In fact, only 5 percent said they currently use robo-advice services and 41 percent said they do not and would not use these services in the future. Thus, without the benefit of a financial professional’s guidance or that of an automated service, these consumers are truly relying on their own knowledge and skill, which may leave them underprepared and exposed to greater risk in retirement.
While more than half of DIY pre-retirees and retirees cited cost as a reason they have not engaged a financial professional, considering the potential consequences of miscalculating how long their assets will last in retirement, it might be worth it to pay the money to ensure they don’t run out of money.
It’s worth it to note that a 2015 Zillow survey found 40 percent of homeowners who attempted DIY projects in their homes regretted their decision.2
1“Retirement calculators show 'dramatically different' results,” Investment News, June 20, 2016.
2 “One in Three Regret DIYing a Home Improvement Project,” Zillow, Nov. 24, 2015