USAA on retirement calculators

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I’ve researched the state of the art in retirement calculators, and I’m splitting the results into at least two blog posts.

For a retirement-calculator geek, I think the best websites are still FIRECalc and FinancialEngines.com. However all calculators have their flaws and let’s face it– neither one is simple to use. They’re both complex in all the right places for all the right reasons but they’re very intimidating to new users and FIRECalc desperately needs an update.

So let’s start with one that’s easy to use, and I’ll save the hard-core calculator geeking for another post.

But first, the FTC wants me to disclose that I’ve been a USAA member for over 30 years. A couple of months ago USAA flew a bunch of us bloggers to San Antonio.  USAA paid for my hotel room & food (good coffee, too) and gave me a gift bag (including a backsack and a cool USAA t-shirt). Then they spent two days beating me over the head with all the good things they’re doing for their members. (We bloggers got in a few comments of our own.) USAA also introduced me to dozens of their staff and another couple dozen military & personal-finance bloggers.  I even connected with a cousin working there, so it was a great trip.

Now the FTC is worried that I’ve sold my integrity and become a total USAA fanboi. You’ll have to decide for yourself whether the following post still retains any credibility.

Whew. Glad we got that out of the way.

One of the best benefits from the conference is the access to USAA’s staff. Before the blogger conference, if I’d called a member service rep and asked to pester interview the creator of their new retirement calculator with a bunch of annoying thoughtful questions, I doubt anything would’ve happened. Since the conference, however, this is my second chat with the decision-makers who build the products and roll them out. I’m looking forward to more. If you have any questions or feedback for USAA, I have a list of contacts who can help. Post a comment here or send me an e-mail, and I’ll find out.

Speaking of membership, anyone can sign up for USAA’s financial services. No qualification required. Insurance membership is for “all who served honorably and their families” but the banking & investment products are open to everyone. Keep that in mind as you consider the merits of this post.

Last week I talked with Zack Gipson, USAA’s VP of Wealth Planning, Retirement, and Discretionary Management. USAA just rolled out their new retirement planning calculator and he’s collecting feedback now.

My first question was “Why bother?” Why spend time & money trying to improve on FIRECalc or FinancialEngines.com? Why not just license those or even buy them?

The answers turned out to be straightforward: expense & customizing. It’s cheaper to integrate a retirement calculator with USAA’s other products when you’re building it from scratch. It’s also much easier than modifying a licensed calculator, and you can make the interface more user-friendly. I’d never thought about usability but it’s their primary design criteria. Zach says the old calculator’s server logs showed that only about 10% of the users completed the process, but now over 80% finish the new calculator’s steps. I’ve become resigned to user-hostile interfaces– but this one keeps you apprised of where you are, where you’re going, and what’s left to get there. If you’ve plugged through other fund company calculators, or been bounced around by FinancialEngine’s interface, then USAA is a big step forward.

USAA designed the planner for their membership demographic that’s most concerned and active about retirement, and most likely to use an online tool: active-duty officers aged 25-34. Now the same features are available to everyone, either online or through a USAA advisor. The calculator is actually two separate modules: a “snapshot”  that takes about five minutes to run, and a detailed planner that requires more data and possibly some separate spreadsheet work.

There are a few caveats:

  • The “snapshot” planner doesn’t even ask you how much you’ll spend in retirement. It assumes you’ll retire on less than your current earnings, which is rarely the case.
  • You can enter a spending amount in the detailed planner, but don’t use a thumbrule like “80% of your current income”. Take the time to forecast your real retirement spending, and then enter that estimate.
  • If you retire at one date but start your military pension at a later date (Reserves, National Guard) then you need to use the detailed planner.
  • The detailed planner estimates your Social Security benefits from your income, which might not accurately reflect your actual employment record.
  • You can only enter your federal income tax bracket. You should estimate your state/local income taxes separately (as well as the taxes you’d pay on capital gains and dividends) and include those accrued taxes as part of your annual expenses.
  • The planner doesn’t handle the COLA in a military pension. In USAA’s defense, very few calculators do this.

It’s not clearly explained in the detailed planner, but all numbers are entered as today’s dollars. For example, a Reserve pension collected in 15 years would still be entered using today’s data.

I managed to lock up the detailed planner just once (in Chrome) and they’re both very fast and flexible. You can back up any time. The detailed planner’s results page allows you to do some “What if?” adjustments without starting over. Both planners remember the data you’ve entered, so you can go back to change your information without having to start over.

The planner uses Monte Carlo: “We run 500 simulations of various investment scenarios varying the expected rates of return, inflation rates and cash flows. After running these simulations, we determine the probability of success based on the percentage of successful projections. A chance of 75% or greater is optimal for reaching your goal.” You may be a little nervous about the other 25% of the projections, but retirement research indicates that really is OK. 

Now for the cool features that you can’t get from some other retirement calculators.

USAA has been quietly running a “Money Manager”  tool that helps you categorize, track, and plan your spending. It uses Yodlee.com (a trusted third-party data retriever) to enable you to import and display all your financial data on one page. Over the last year Money Manger has attracted over a million users who’ve built their own consolidated views of their checking & savings accounts, credit-card spending, and mutual funds.

The retirement planner taps into Money Manager data. As you decide how much you’re spending in retirement, it helpfully comments “Based on your budget in USAA Money Manager, you are currently spending…”, allowing you to insert or edit the data.

Once you’re finished with the planner, USAA uses your asset-allocation profile to suggest funds that help you save for retirement. It not only recommends mutual funds but also CDs or cheap annuities. Yes, the suggestions are tailored to a generic profile and may not be exactly what you want, but you can edit the recommendations and check that they still match your risk profile. You can execute the plan from that page or consult with a USAA financial advisor. They can also bring up your retirement planner’s data on their system, follow along as you change the various data, and use their own custom tools to offer more suggestions.

In a couple of months USAA will augment their planners with additional goal-setting and tracking calculators. You can set a specific goal (a home down payment or the kid’s college fund) and track your progress. They’ll also build in online quotes for immediate annuities. (Financial researchers recommend annuitizing a portion of a retirement portfolio, whether that’s Social Security or a military pension or a single-premium immediate annuity). Most credible annuity-quoting websites vanished a couple of years ago during the Great Recession (or required you to contact a sales rep) so this is a welcome tool for comparing products.

When USAA’s new tools are out, I’m looking forward to another conversation with Zach. What questions do you have? What would you like to see USAA offer?

We’ll talk about the nitty-gritty details of hard-core financial calculators in another post. They’re niche tools and not as user-friendly as USAA’s retirement planners, but they offer more ways to manipulate and analyze your data.

Related articles:
USAA’s underwear secrets
Bloggers at the USAA Blogger Event
Problems with retirement calculators
Back to the Trinity Study
Details of the 4% Safe Withdrawal Rate
Is the 4% withdrawal rate really safe?

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WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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