On the Web

Online Calculator Takes On Annuities

Not all financial calculators are created equal.

That’s what Fidelity Investments hopes baby boomers will conclude about its “Income Strategy Evaluator,” which may be the first online calculator that proposes how individuals should invest their nest egg to ensure it will last through retirement.

There are numerous calculators online to help working individuals tally how much money they will need to accumulate for their retirement, including “Target Your Retirement,” which was created by Boston College’s Financial Security Project, this blog’s host.

But the strategy for withdrawing from that nest egg during retirement “is very different than the accumulation discussion,” said Chris McDermott, Fidelity’s senior vice president of financial planning. That discussion requires individuals to answer the questions, “What do you want and how much can you get out of your assets?”

Granted, the Boston financial services behemoth is in the business of selling financial products, and annuities are among the products it hopes to sell to individuals who use its calculator, which is free to customers and non-customers. Individuals input their portfolios and other personal information to generate the right mix of stocks, bonds, and fixed or variable annuities to meet their needs.

But Brett Wollam, senior vice president of Fidelity’s insurance marketing, said the calculator’s software is driven not by Fidelity’s desire to sell, but by each individual’s life preferences. For example, they are asked to input how much monthly income they’ll need for necessary expenses and whether they want to leave any money to their offspring.

And the calculator generates both annuity and non-annuity options so individuals can compare them.

Financial experts view annuities as useful for some retirees. Individuals who have saved enough for retirement can use them to lock away that money and guarantee their future income. However, annuities are unlikely to be a solution for someone who hasn’t saved enough.

What’s clear is that annuities are unpopular. Many people consider them too complex. And insurance companies make comparison shopping virtually impossible for mere mortals by larding on untold numbers of options to differentiate their products from the competition.

In Fidelity’s own online survey last year, 71 percent of individuals age 55 and older said they did not plan to rely on annuities for retirement income.

Fidelity receives a commission for each fixed annuity it sells. The fixed annuities, which provide a steady stream of income, are offered by five insurers that bid on the business: John Hancock, Massachusetts Mutual Financial Group, MetLife Inc., New York Life Insurance Co., and Principal Financial Group.

Fidelity charges a mutual-fund-like fee for the variable annuity, which it manages; variable annuities participate in stock market gains.


Fidelity's Retirement Calculator

4 Responses to Online Calculator Takes On Annuities

  1. Neil Plein says:

    There needs to be a better approach for participants than the current online calculator options. It is clear why Fidelity is promoting this; it allows them to harness a rate of return for predictive purposes outside of requiring a manual calculation on the behalf of participants (the current standard). A more usable solution needs to come than this annuity based option or the currently available options. I recently wrote an article outlining the way forward: available here

  2. Fidelity has long taken a leadership position in this kind of offering, but it is hardly the first to include annuities, nor is it the first to deal with household expenses in a reasonably comprehensive way.

    Although this software is far better than what most other financial companies offer, that’s a very low standard, and it is only a moderately good tool for individual financial planning for retirement.

    The main reason I say that is that Fidelity’s focus continues (not surprisingly) to be on money management, but there are many other issues that people who are actually in danger of running out of money need to deal with. And a model that deals with only a few of those issues, but not all of them, is in danger of offering suboptimal or even outright wrong advice on a regular basis.

    Fidelity appears to be backing into a truly comprehensive model, step by step, as if they really don’t want to do it. At this rate, in another 20 years, they might get there. In the meantime, caveat emptor.

  3. Rasika says:

    I 100% agree with Chuck Yanikoski. There are many other issues that people who are actually in danger of running out of money need to deal with.

  4. I too agree with Chuck. It seems like a long road that Fidelity is taking.