Most people in LeWinter's position who prepare for retirement either develop their own plans by the seat of their pants or hire a financial planner to draw up ound plans. LeWinter, however, turned to a personal computer and financialplanning software called Prosper, provided by the accounting and management consulting firm Ernst & Young. (Prosper was developed by Reality Online, a commercial software firm that markets a closely related product called Wealth-Builder.)
Using Prosper, LeWinter has been able to set long-term financial goals and to see how much he and his wife will have to save on a continuing basis to reach those goals. "Without the guidance it offers, I wouldn't have known I was going in the right direction," says LeWinter, who has used the software for one year.
Most small-business owners don't plan for retirement at all, according to financial consultant David Geller of Geller & Associates, in Atlanta. While some of them generate a substantial amount of revenue from their companies over the years, Geller says, most plow the profits back into their businesses instead of investing at least some of those profits in other assets.
To protect themselves against economic downturns that could affect their companies, Geller says, they should consider investing some money outside their businesses so they'll have a better chance of building a substantial nest egg for retirement.
The need for sensible retirement investments couldn't be greater now that Social Security is projected to become a smaller percentage of income among baby-boom retirees. According to the Employee Benefits Research Institute (EBRD, in Washington, D.C., Social Security made up 41 percent of income for people 65 and older in 1992; the last year for which such figures are available. EBRI expects that percentage to decrease over the next decade as baby boomers begin to reach retirement age and the number of Social Security recipients increases.
Although EBRI predicts that pension and annuity income will fill in some of the gap for retirees, many small-business owners lack such benefits. In addition, people are living longer, so their retirement savings must stretch over more years. Planning for retirement early has become a must.
'The key for anybody with retirement savings is to start doing it and, over time, increase the amount" put into savings, Geller says. "Early retirement savings makes an enormous difference." For example, if you start saving $3,000 each year at age 25 in a tax-deferred account earning an average of 9 percent annually, the account balance will be $1.17 million by the time you turn 65. In contrast, if you wait until age 35 to save the same amount annually, you will save $457,685; if you wait until age 45, you will save $166,971.
Mustering the discipline to plan for retirement isn't easy, but, as LeWinter discovered, help is as close as a computer equipped with one of several good financial-planning software packages. (Personal-finance programs such as Intuit's Quicken, Meca Software's Managing Your Money, or Microsoft's Money have become popular among personal-computer owners who want to keep track of everyday bills and expenses, but they aren't much help in developing long-range plans.)
Two Kinds Of Road Maps
Retirement-planning software comes in two varieties: mass-market programs, available in retail stores, and private-label packages that you can buy directly from financial-services companies such as accounting and consulting firms and investment houses.
Both varieties of programs are geared toward individual financial planning, although firms such as Ernst & Young and Price Waterhouse license their software to companies that want to help their employees set up retirement plans. Typically, both kinds of software lead you through an interview that ascertains your current financial situation and retirement goals.
Based on this information and projections for inflation, the programs tell you how7 much you need to set aside on a regular basis and suggest ways to invest your savings. At their best, financialplanning programs can help you create a detailed road map for reaching your retirement goals.
Intuit's entry into the mass market is Quicken Financial Planner, which has just been updated to cover a variety of longterm financial needs in addition to retirement. The new version's QuickPlan option allows you to prepare a very basic financial plan in about 15 minutes. You can then revise that plan in more detail by following the main workbook method, a step-bystep process covering your current financial situation, retirement goals, and the impact of major purchases such as homes and college expenses.
Whichever method you use, the program allows you to enter financial information directly or import it from your Quicken personal-finance software. Both methods give you explanations and investment advice from Newsweek financial columnist Jane Bryant Quinn. (The CDROM version features audio and video clips.)
Based on your financial information, Quicken Financial Planner tells you how7 much you must save in order to reach your long-term goals and suggests a mix of investments such as stocks, bonds, and mutual funds. The program then analyzes the plan you choose and uses graphs and reports to explain wrhy it would or wouldn't work.
To help you keep up with your investments, Quicken Financial Planner includes a mutual-fund-performance database from Morningstar Inc., a New York City-based investment-research company. You can download updated data from Intuit's World Wide Web site using the Netscape Navigator browser built into the program. A new feature helps you determine whether you have enough life insurance to continue to meet your goals if you or your spouse should die. The new college-planning module allows you to calculate college expenses using a database of 1,700 public and private colleges and universities.
Quicken Financial Planner packs a great deal of information into its financial forecasts and advice, but this can make the program difficult to use and some of the financial information hard to interpret Even so, the program's comprehensive planning information makes the effort worthwhile.
Starting With 'What If"
Reality Online's WealthBuilder and its close cousin, Ernst & Young's Prosper, take a similar holistic approach to financial planning. WealthBuilder and Prosper begin by compiling your investment profile using a series of "what if" questions concerning attitudes toward investing and financial risk. After they calculate your net worth and expenses, you set your financial objectives and receive "bottom line" estimates of how much you need to save each month to reach them.
As comprehensive as these programs are, they are not easy to use. WealthBuilder doesn't lead you through its financial-planning modules in any particular order and doesn't explain the icons on its menu. Consequently, you have to lean heavily on the manual the first time through. Prosper's interface and manual are easier to use.
Providing the required financial information in either program can be a daunting task unless you are importing it from a personal-finance program such as Quicken, Money, or Managing Your Money. "It's not a thing where you can take 15 minutes and plug in some numbers," says Andrew7 LeWinter. "But once they're in, you know the program is working on a solid base."
Prosper provides more-extensive advice than WealthBuilder about how you should invest your money. WealthBuilder, on the other hand, comes bundled with financial-planning expert Jonathan Pond's Personal Financial Planner tutorial from Vertigo Development Group, a self-help program combining text and video clips.
Both Prosper and WealthBuilder offer optional financial information through the Reuters Money Network, an on-line service that can be accessed by modem. The sleeper in the retail category is DataTech Software's Rich and Retired. This program bases its planning assumptions not only on your current income but also on your estimates of future income, allowing for growth. This hypothetical approach is not extended to your expense and budget estimates. Instead, Rich and Retired estimates your expenses now and what they will be at retirement; it assumes these will change only as a result of inflation. However, you can go back and adjust these estimates over time as your situation changes.
Rich and Retired's most unusual feature is its comprehensive overall and year-to-year estimates of your financial situation, complete with balance sheets and spending graphs showing the projected growth of your financial assets. From a usability standpoint, Rich and Retired's interface screens are inconsistent. A "Help Genie" button provides some assistance, but the program's menu and "12-step" planning process are clearer if you follow the manual closely.
Financial-Services Packages
Whereas the retail financial-planning packages such as Rich and Retired and WealthBuilder are action-oriented, the programs offered by financial-services firms are typically more educational. Their goal is to show users why and how thev should save.
For example, Fidelity Investments' Thinkware is more of a home-study course in retirement planning than a way to formulate an actual plan. A lengthy tutorial explains investment concepts and the importance of planning for the future based on your replies to a quiz on your retirement-planning knowledge.
In addition, the tutorial makes effective use of animated graphs—they change to illustrate how various financial factors such as inflation, savings, and tax deferral can affect your retirement nest egg. Moving into the interview sections, Thinkware uses "what-if" scenarios to help you plan. The program explains each step of the process as you go and suggests an investment strategy. The problem with this approach is that it depends more on your retirement goals and tolerance of risk than on any detailed financial information you provide.
And Thinkwrare's advice isn't for those averse to risk; it leans heavily on stocks and mutual funds and downplays moreconservative strategies. Similar advice is offered by Vanguard Retirement Planner, an easy-to-use program that pushes the Vanguard Group's stock funds. Retirement Planner's primer section is an interactive textbook that explains investment principles in simple terms and gets information about your financial situation and retirement plans.
Comparative graphs and historical market data in the savings and portfolio planners show how your current savings strategies measure up and the risks and returns of the investment strategy that Retirement Planner recommends for you. For all of its educational value, Retirement Planner's advice can appear onedimensional.
The program imposes investment strategies on you rather than letting you choose among several alternatives. And no matter how conservative an investor it decides you are, its standard advice leans heavily on stocks. Price Waterhouse's Retire Secure takes a more conservative approach to investing. A true CPA's planning system, this program emphasizes tax-deferred savings and eschews stock and mutualfund advice.
Retire Secure asks first-time users to enter basic financial information, retirement goals, and estimated retirement benefits, which can be revised later to incorporate more detail. When you have completed the interview, Retire Secure gives you a rundowm of your financial situation and tells you whether your retirement spending goals are attainable. If you want to revise any of the assumptions, just add a new figure on the appropriate line.
Retire Secure also allows you to factor in the income you will need at different stages of retirement rather than assuming you will need a constant income. Even though the Price Waterhouse program allows for detailed estimates of retirement income, it assumes that income will be constant over your working years and doesn't give you an indication of how taxes will affect your nest egg. Another drawback is Retire Secure's user interface, which is difficult to follow because it lacks real instructions about what the charts and lists mean or how to make more-detailed revisions.
No matter whether they are trying to educate or to provide actual financial plans, financial-planning software programs can be a good first step in planning your retirement. Financial planner Geller says these programs can build awareness about the importance of retirement and can give small-business owners baseline ideas about what they will need to retire comfortably. Individuals should still seek professional advice, he says, when the time comes to make financial decisions, but financial-planning programs can help them make the right choices.
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