Retirement planning is complex. There are calculations required and data is needed. How many calculations and how much data depends on the type of planning one wishes to do. Most people do not know how to do these calculations on their own and may not know how to find the right data. Fortunately, there are many tools and software packages available to help.

But the situation is not so easy for the average American. The tools come from a variety of different sources and the user may find it difficult to figure out which should be used in a specific situation. One service that employers can provide is to evaluate, select and recommend such tools based on what they see as employee needs. This article sets forth some of the issues for employers to think about as they are performing these tasks. It also provides information that employers can use in asking questions of plan administrators and other vendors who offer tools that may in turn be offered to employees.

The Society of Actuaries and Financial Finesse have partnered to recently complete Retirement Planning Tools, a project designed to help users select the software that fits their retirement planning needs. Some of the things to think about in choosing which tools to use or recommend include the following:

• What question is the tool designed to answer? Individuals using the tools may have a variety of questions that they want answered. For example, an early career employee may want to know how much to save for retirement. Or they may want to know if it is better to put money in a 401(k) or pay off a student loan. Those nearing retirement may want to know if they can afford to retire. They may want to know what option they should choose for receiving pension benefits. They may want to know what the pros and cons are of paying off a mortgage. It is important for the tools chosen to fit the questions that the users are trying to ask and for the user to be able to understand whether the tool will respond to her questions.

• How personalized is the tool? Individuals have different situations. Some households have multiple people working and benefits from prior jobs. Some have children who will still be in college after retirement. Some are helping parents. It is important to understand the extent to which a tool takes individual situations into account.

• Is the tool easy to use? Tools range in how user friendly they are. Some are very easy to use and limit the extent to which the calculation is customized to a personal situation. Some require a lot of input and allow a lot of tailoring, as well as a focus on many more questions.

• How much does the tool cost? There is a range of costs. Some are free and others may have a hefty price tag. Some vendors offer a free product which can be upgraded to perform additional tasks.

• Who created the tool? The providers of some tools are unbiased, but others may have a bias whether intentional or unintentional. If the provider of the tool is also selling products, it is important to consider whether the tool is designed to encourage purchase of their products.

Retirement Planning Tools defines three types of retirement planning tools: simple calculators, intermediate calculators and advanced calculators. For each type of tool, the report defines the types of questions that a user will probably be asked before using the tool, some of the limitations in these types of tools and ideal users for them. For example, the simple calculators are well suited to helping younger individuals calculate desirable amounts to be saved and desirable deferral rates for 401(k) plans. Ideal users for the intermediate calculators are mid-career individuals who may want to understand how long their retirement balances may last. The advanced calculators are well suited to financial professionals and to people nearing retirement who want to see if they can retire and plan their retirement in more detail.

There are several other things employers should think about in choosing tools. The output from any calculation is only as good as the input. The input needed should be clear and something that employees have a good chance of getting right. The employer may be able to link the tool to their administrative system so that inputs are fed in directly. The assumptions may be selected by the tool, the user or a combination. The calculations depend on the assumptions. The degree of quality control built into a tool varies greatly. Prior Society of Actuaries research tested a range of retirement planning tools and found large differences in the answers they produced and big differences in quality control. These reports Retirement Planning Software and Post-Retirement Risks(Society of Actuaries 2009) and Retirement Planning Software (Society of Actuaries, INFRE, LIMRA 2003) offer detailed insights into some of the findings when a variety of different software was evaluated. The 2003 report includes results from running a number of case studies through some sample programs. The variability of the results found in that report offers lessons that remain important today. Both reports include discussions about quality control and issues. They are helpful background for employers considering recommending programs today.

There are also special limited purpose tools that are much easier to evaluate and recommend. For example the Actuaries Longevity Illustrator (Society of Actuaries, American Academy of Actuaries) enables individuals to estimate how long they might live, and enables couples to estimate how long they both might live, including how long a surviving spouse might live.

Tools are important and they can be very helpful to employees, but care is needed in choosing wisely.