Online retirement calculators and Procrustes' bed

The Saturday, February 20th issue of the Wall Street Journal had an article that questions the validity of retirement calculators.  Researchers at Texas Tech in Lubbock, Texas looked at many examples, including from Fidelity, AARP, T.Rowe Price, Vanguard and Market Watch.  The researchers found that the calculators often found the users to be in good shape for a decent retirement when a more detailed analysis showed that they were in trouble.  The calculators were usually too optimistic.

I have noticed this problem with the calculators.  They focus on average costs and aspirations rather than on the user's actual costs and plans.  This makes sense is you're average, but very few people are. I was reminded of the Greek myth of Procrustes's bed.  Procrustes was a brigand who stopped travelers between Athens and Eluesis when they passed by his mountain stronghold and offered them a bed for the night.  If the bed did not fit them exactly, however, he would cut off the legs or stretch them to make them fit.  He had a weird sense of humor.

In like manner, the calculators try to make the prospective retiree fit into a set size.  For those of us living in high cost regions, like Massachusetts, a higher-than-average income is a necessity.  What this means is that it would make a lot of sense for retirees to plan to move immediately when they retire.  Don't wait for a few years and use up all your savings before you are forced to make the change.  Even moving from the Boston area to the wilds of Berkshire County at the western end of the state can reduce costs dramatically.  Iowa might be even cheaper.

You can access the article by clicking on the image below:

The article evoked some interesting comments.  Here is one of my favorites, from a financial planner named Ginny Butterworth:

"THE best retirement planner is a pencil and piece of paper. As a financial adviser the first step for my clients was to have them prepare a budget of their present financial life, next a budget based on (presumably) reduced expenses in retirement and only then look at income sources and how to finance their retirement expenses. The problem? most clients have no idea how much they spend, much less what expenses are optional and the bigger problem, few people want to take the trouble to prepare a budget. So folks, if you plan to retire someday, start planning now by preparing an annual budget and identifying some $ you can save every month, however small."