BOSTON – Retirement calculators have many flaws, and now a new study finds yet another glitch in the ubiquitous tools that help Americans figure out how much to save for retirement.

Apparently, too few calculators take into account longevity risk — the risk of outliving your assets — when they crunch the numbers.

Most calculators “are limited in the way they handle longevity risk,” wrote John Turner, the study’s author and director of the Pension Policy Center.

Turner identified 25 Internet-based retirement calculators and then took those programs through their paces using two fictitious profiles, one designed to tilt the results in favor of annuitization or partial annuitization and the second designed to tilt the results against buying an annuity.

He found that most programs are designed to figure out whether the user has enough money and retirement income to provide a desired level of income for a fixed number of years. The programs do not, however, consider longevity risk and the value of annuitization, he wrote in his paper, published by the Pension Research Council.

Some programs cope with longevity risk by setting the fixed planning period as late as age 95 or 100. But that’s not good enough, especially if you have a long life expectancy. In those cases, “an annuity might be a more efficient way of dealing with life-expectancy risk,” wrote Turner, who has studied retirement software and annuitization extensively.

Also, just one of the 25 programs suggested annuitization would be sensible for the first profile. Turner said nearly all of the programs studied suggested phased withdrawals as a way to cover a fixed lifespan. Two programs mentioned annuitization, but more as a general response, not specific to the data entered. And three programs suggested annuitization, but only in supplementary materials.

In short, the programs, some of which can be found on insurer’s websites, don’t advise annuitization — and that may be among the reasons why people do not annuitize.

“We believe that one of the reasons why few people annuitize is that they are generally not advised to do so in online retirement planning calculators,” Turner wrote.

It’s not quite fair to blame retirement calculators for the lack of annuitization in retirement, said Anna Rappaport, president of Anna Rappaport Consulting.

“We do not know how many people base their decisions on recommendations by retirement planning software,” she said.

According to Rappaport, many Americans and advisers simply don’t like or know enough about annuities.


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