By George Hager
Washington Post Staff Writer
Sunday, September 26, 1999; Page H7

Want a Shock? Do the Numbers Online I never thought much about retirement until I started opening my monthly individual retirement account statements and saw numbers that made my eyes pop. A few more years of this, I thought, and I could be on a beach somewhere, writing the great American novel. How big would those accounts really have to get before I could seriously consider retiring? Answer: A lot bigger. Numbers that look good on an IRA statement don't necessarily impress the cold-eyed calculation engines in the three software packages and the three retirement planning Web sites described here. Anyone musing about the idea of retirement would do well to consult any of these programs, all of which perform the complex calculations -- Am I saving enough? How long will my savings last? How long until I can retire? -- that will let you know whether you're on track. With one exception -- the ESPlanner software -- these tools are variations on the same theme. You tell the program how much money you've got in IRAs, stocks, a pension and so on, how much you make now, when you'd like to retire, how long you're likely to live, and how much money you think you'll need to live on. The program crunches the numbers and tells you whether you're in good shape or not. If not, it advises you how much more you ought to be saving. The biggest difference between the programs is sophistication -- software generally allows for more power and complexity than Web site calculators, plus they save your plan and let you come back to tweak it over and over again; most Web sites don't do that. It is crucial in doing this to remember Remember the old computing maxim: garbage in, garbage out. These calculators are only as good as the data you feed them, and it's a good idea to be conservative. For example: I invented a $500,000 stock portfolio and fed it into a terrific little calculator at SmartMoney.com. Pretend I plan to retire tomorrow and expect to live another 50 years. At 3 percent inflation, I could pull out almost $22,000 a year in inflation-adjusted dollars for the rest of my life. But at 6 percent inflation, that would drop to only about $12,500 a year. Ouch. The moral: If a program tells you you can retire tomorrow, fiddle with "what if" scenarios to see what would happen if conditions turn out to be worse than you expect.

Sometimes computer software can be a wonderfully useful tool. Sometimes it can be the cyber equivalent of a willful two-year-old. Example:

Me: Put this IRA in my retirement plan.
Quicken 2000: No.
Me: OK, please put this IRA in my retirement plan.
Quicken 2000: No!
Me: Put this $#@&! IRA in my retirement plan!
Quicken 2000: No! No! No!

Like any competent adult, I eventually worked out a truce, and in the process learned something important about this latest version of Quicken's feature-rich and generally quite useful money-management program. It's not a retirement planner, at least not in the sense the other programs described here is.

Instead, it is a collection of tools that let you do a lot of things – keep your checkbook, manage your investments, plan your retirement – as long as you do them Quicken's way. For example, in this case, that means you exit the retirement module, go to the investment module and enter your IRA there. Then you go back to the retirement module and there it is. Too bad they don't tell you that in the first place, but now you know.

Once you get the hang of it, Quicken's retirement planner works well. Its best feature is a powerful "what if" analyzer that makes the process easier than competing programs. Once you've entered all your numbers and found out whether your retirement plan works or not, you can easily change any underlying number and instantly see the effect. This can be very sobering. On my first pass, the numbers allowed me to retire comfortably at 62. But if I assumed 4 percent inflation instead of 3 percent, my plan failed. Ditto if the rate of return on my investments was 1 percentage point lower than I forecast.

On the negative side, Quicken offers almost no guidance on the crucial matter of what rate of return you can expect on your investments, a number that can wildly skew your retirement plan. To wrestle any advice from Quicken, you have to burrow down through the "assets allocation" section to the "model portfolios" page, where you can see that various mixes of stocks, bonds and cash generally yield 6.5 percent to 11.5 percent over time. Which should you pick? You're on your own.

Worst, though, is a problem that Quicken shares with virtually all other retirement planners:It demands to know how much you'll be spending once you quit working. Methods for picking a number range from taking a percentage (generally 60 percent to 100 percent) of what you're spending now to laboriously entering, item by item, how much you think you'll be spending at a certain point in the future.

An interesting alternative approach comes from a new program called ESPlanner, developed by Boston University economist Laurence J. Kotlikoff and two colleagues. It focuses on using your savings and income to show you how much you'll be able to spend in retirement.

The results are a bit overwhelming.. ESPlanner generates 28 separate reports, beginning with bare-bones recommendations and quickly escalating to detailed spreadsheets that show how much savings you'll have, what your taxes will be, how much you can spend and so on and on, year by year for as long as you expect to live. There are explanations for all these numbers, but they are written in a sometimes numbing combination of English and econo-ese.

"We're trying to make it as user friendly as possible, but we're economists," Kotlikoff said. This is a feast for the detail-oriented, and if you demand the deepest and most powerful planning engine, look no further. But this might be too much for the average would-be retiree.

A cheaper but quite viable alternative to its two pricier competitors (both Quicken 2000 and ESPlanner sell for $49.95) is the $9.95 T. Rowe Price Retirement Planning Analyzer, a straightforward retirement planner that offers reasonable advice on inflation and investment returns and walks you through a painless interview to produce a readable and useful retirement analysis.

I gave this program extra credit for recommending that I use a conservative 4 percent inflation projection. Unlike Quicken 2000, it said my retirement plan worked at 4 percent, which was gratifying but confusing, since one of them has to be wrong. All the more reason to treat these calculations with caution.