I am a 100% self-directed investor, including using a self-managed brokerage account inside my 401(k) plan. Nevertheless, I periodically look for affirmation from objective third-party sources that our retirement investment plan is on the right path to success. I received some positive affirmation this past week, boosting my confidence in our plan.
The Financial Engines analytical software has direct access to current information about our 401(k) plan investments. I input and update information about our other retirement investments so that the Financial Engines tool has a complete picture. I also input our retirement goal. More specifically, I tell the software (a) how much retirement income we will need (including Social Security) and (b) the age at which we will “retire” and therefore need this income. I chose age 66 for me although I may work – at least part-time – beyond that age. I want to know that we will enough income available at that age so that I won’t be forced by financial necessity to keep working if I don’t care to.
The Financial Engines software runs its analysis based on our current investments and communicates a probability of reaching our retirement income goal. The maximum probability range is “greater than 95%” which is what my recent report stated. That’s satisfying. It hasn’t always been that high. It dropped to 36% probability in February 2009 but moved back to 70% probability by May.
The second component of the report – should I make any changes to our investments – has always included recommendations for changes, until last week. Instead, I received this message in my FEAdvisor email:
At your current risk level, we cannot suggest any changes to your investments that would significantly improve your retirement outlook. Any changes we could suggest would provide about the same chance of reaching your goal.
Honestly, I was surprised by this. Although I do a lot of research and analysis before arriving at our investment decisions, I assumed that a computerized investment wizard running millions of Monte Carlo simulations could do better. Apparently not this time. I think one aspect of our plan that is in my favor is how little risk I am willing to take of being unsuccessful. At age 60, that’s the way it should be. If our risk tolerance were greater, the Financial Engines software might make some recommendations for changes.
I don’t claim to be an investing genius but this does give me confidence that with some learning and due diligence, any one of us can create a proper retirement investing plan.
Even if you don’t have the time to learn about retirement investing or trust yourself enough to do it, it would still be wise to use an analysis tool on your own portfolio, after the portfolio is designed by your financial advisor. If the analysis does not confirm that your plan will likely achieve your retirement goals, warning bells should go off in your brain. You should definitely raise the issue with your adviser and have him/her explain how the success of your plan is predicted.
The Financial Engines tool is available to anyone but if your employer doesn’t provide access, it requires a fee-based subscription.
There are other options to get your own retirement plan confidence boost. One that I have been aware of but haven’t tried yet is NestEgg Software. It is free for individual consumer use. I plan on giving it a workout this month. I have created an account and can tell after a quick look that it will take some effort to set everything up.
What do you to build confidence that your retirement plan is likely to be successful?