Why Retirement Savers Don’t Love 401(k) Predictive Tools

There’s a lot we can’t predict, like the outcome of the midterm elections, who will make it to the Super Bowl or whether Taylor Swift was actually hinting at a new album release in that Emmy’s sketch. But when it comes to what our retirement looks like, we can certainly try. 

Many retirement plans offer predictive tools that can help savers forecast their future balances, retirement readiness, income replacement rates and more. Participants, however, aren’t happy with the options: J.D. Power’s recent survey of digital experience satisfaction for retirement plans found that predictive tools were the lowest-performing attribute. 

“The technology in the 401(k) is seriously behind what people are used to in their consumer life,” said Fred Barstein, CEO of The Retirement Advisor University. When the underlying technology structure is old and cumbersome, it’s hard for the tools to be as effective as they could be. 

Where to Improve 

Interest in the retirement projection tool, which you’ll typically see displayed when you log into your retirement account, has grown over the past five to six years, said Madeleine Gannon, senior research associate at Corporate Insight. 

“That’s really understandable when we consider how uncertain the markets have been, how high inflation has become, rising medical costs, and the increase in Americans who are becoming caregivers or who live in a household that’s multi-generational where you might have student loans and a mortgage,” Gannon said. 

But for most firms, predictive tools could be an area to improve, she added: 

• Many focus on balance projections without emphasis on decumulation, so it’s hard for participants to plan how much money they should withdraw and when. 
• A more personalized analysis taking into account factors such as part-time work, debt and caregiving costs would be one way to enhance such tools. The same goes for nuanced scenario modeling for different market conditions and financial events, such as paying for a large expense or receiving an inheritance, Gannon said. 

Generally, these tools are the strongest when they’re used to pique someone’s interest, and then engage them with a human, such as an advisor, Barstein said. “The technology is very important, but if you just leave it to the user to find it, know how to use it and trust it, that’s where the problem is.” 

No Planning in a Vacuum. More firms are also leaning toward a holistic approach to financial planning and retirement. For instance, Gannon’s firm is seeing account aggregation such as the option to link your bank accounts to your retirement plan become more popular. “Your outside finances, your outside goals and your outside obligations all impact your ability to save and how you save,” Gannon added.