New online tools from investment companies are driving home the message that when it comes to retirement savings, you're on your own.
Recent changes to federal retirement policies have been based on the premise that private savings plans like 401(k)s will make up for stingier pensions and Social Security shortfalls in the future. Yet survey after survey shows that Americans aren't saving enough on their own.
Now Web-based retirement calculators and similar features from companies like Fidelity Investments and John Hancock Funds are underscoring the importance of putting more aside. The calculators show individuals how much they will need to save for the retirement they expect, often setting a daunting target of $1 million or more.
Those targets are generally in line with the conventional wisdom that future retirees should aim to replace 80 percent of the annual income they made during their careers.
"The financial service companies are saying, 'Americans aren't saving as much as they need,' and policy makers and nonprofits are saying the same thing," said Michael Herndon, a manager for AARP in Washington.
Though AARP is often at odds with investment companies on issues like Social Security reform, Herndon said the companies' formulas are broadly in line with a calculator on his own organizations' website.
"The more people self-assess, the more they're likely to take the steps they need," Herndon said.
"Far too many Americans get to retirement without ever having done this."
Mutual fund companies have an interest in boosting savings rates, because a change would increase the assets they manage.
Also, because of recent federal rule changes that make it easier for savings-plan sponsors to offer advice, many of the tools are aimed at the financial advisers who sell mutual funds, as much as at consumers themselves.
Karen Remmele, an analyst at the Boston research firm Cerulli Associates, said the approach is part of a broader shift of fund firms to focus more on retirement issues, to keep baby boomers as customers even as their income streams dry up.
In talking about their products, many executives sound like professors on the first day of an economics class. "There's a mystique about savings," said Carey Foran Hoch, senior vice president of John Hancock Funds.
"Everybody knows they will have to save for retirement, but how do you get started?"
Hancock got started in June when it launched a website revamped at a cost of $2.5 million.
Like other companies, Hancock aims its site at financial advisers, as well as private investors. Since the summer, 6,000 new advisers have registered as users, twice as many as before.
One of the site's most popular links poses the question, "What will it take to become a millionaire?
" Clicking on those words, a user is taken to a screen and asked for data such as age and the value of current savings.
A 40-year-old with $50,000 saved so far, who could put away $500 a month and expect a return of 6 percent, wouldn't become a millionaire until age 84, according to a basic example on the site. To accumulate $1 million by age 65, this user would have to increase monthly savings to $1,653 or take on additional risk and try to boost annual return to 13 percent.
Aren't those numbers simply daunting for the average saver? "Our whole message is, start early and be serious about savings," Hoch said.
Tools like Hancock's are sometimes known as optimizers, because of the mathematical formulas they use to calculate future income based on expected average rates of inflation, market increases, and other factors.
Others aim their calculators at financial advisers who sell their funds, but make them available for all to see. American Funds, for example, revamped its online calculators in April to create a quick-analysis section that asks people to plug in how much they expect to receive from pension and Social Security benefits.
Last month, Fidelity Investments of Boston put up the "myPlan" section of its website, which includes a light rock soundtrack and a narrator's voice asking users to input factors such as age and salary.
"Sound scary? Well it doesn't have to be," the voice explains. "It's just a way to get you from here to there, and there is just a number.
"
MyPlan also shows how much investors will save in scenarios in which the stock markets post average and poor returns.
Fidelity senior vice president Carolyn Clancy said that nearly 250,000 people have used the site since it went up and that users complete its questions more often than they did using an older calculator.
Also, public interest has been boosted, Clancy said, by things like the publicity surrounding the pension reform President Bush signed over the summer that will encourage the creation of more defined-contribution plans like 401(k)s.
"There's greater awareness that there will be more individual responsibility around retirement," she said.
Services like these show how companies are trying to make people aware of what they'll need to save, without the generous private pension plans and rising Social Security payments that earlier generations expected, said Kathy Himsworth, a Vanguard Group Inc. retirement plan executive.
Vanguard, the Pennsylvania fund complex, hasn't added new calculators for people who aren't its customers. But this year it did start mailing a statement sheet once a quarter to people who participate in the 401(k) plans it operates for thousands of companies, showing their balances and how much monthly income they will be able to count on in retirement. Assumptions include an after-inflation investment return of 4 percent, retiring at 67 years old, and a 30-year retirement.
Not all retirement specialists praise the advice. Zvi Bodie, a Boston University professor of finance and economics, says too many calculators are biased against US Treasury bonds and other instruments that provide good hedges against inflation, but can't be resold at big profits.
Another skeptic is Joe Nagengast of Marina del Rey, Calif.
, a consultant to plan sponsor companies. For example, he worries there are no guarantees the stock markets will provide the returns the calculators assume.
He also worries that the calculators will tempt people to adopt risky investment styles that might not deliver their higher promised returns.
"To think you can make up for inadequate savings by increasing your risk -- that's really misleading," he said.
Yet the popularity of the calculators suggests that other models proposed to provide savings advice have failed, Nagengast said. Ultimately, he said, "it's better they get some advice rather than none.
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