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Personal Business: HOME SOFTWARE FINANCIAL
SET YOURSELF FREE FROM FINANCIAL-PLANNING PHOBIA
Time was when trying to develop a long-term financial strategy meant dealing with a professional planner who might charge steep fees or steer you toward those investment products that would pay big commissions. But thanks to the revolution that's under way in personal computing, there's another option: A proliferation of new software programs can help you prepare for retirement, fund your children's education, and reach other major financial goals.
Although making even the slightest change in the underlying assumptions about inflation, tax rates, investment returns, and income can cause dramatic swings in the projections, these programs can help you assess whether you're headed in the right direction--and possibly spare you a nasty surprise on the day of reckoning. And while none of the programs attempts to select specific investments, some of them offer asset-allocation advice based on your age and risk tolerance.
PULL-DOWN MENUS. If you're one of the many people who have lingering phobias about finances and computers, Quicken Financial Planner may relieve you of both these fears. From Intuit, the maker of the popular Quicken home-budgeting program, the Financial Planner provides generous help screens, tutorials from noted financial columnist Jane Bryant Quinn, and colorful charts and graphs to demystify the whole process. And while some programs on the market give only a lump-sum estimate of how much your defined goals are going to cost and how much savings you'll have, Quicken provides a detailed grid showing year-by-year projections of your expected income, cash flow, and expenses--from now until your 125th birthday, if you think you'll live so long.
What's more, Quicken is among the surprisingly few programs that allow you to distinguish each spouse's income and retirement benefits and to project periodic changes for either person. This capability enables you to estimate the overall effect if, say, one spouse quits work for several years--to stay home with a child or return to school--and then reenters the workforce at a sharply higher or lower salary. By contrast, many lower-cost programs force users to enter the combined household income and the average annual change they expect over the course of their career--a design that might fit civil-service types, but few others.
If you can do without the coddling, Price Waterhouse has the Retirement Planning System and two other programs--for education and survivor income (covering insurance and estate matters)--that are as powerful as anything a professional might use. But the Price Waterhouse offerings are more like computational tools than instructional programs. The programs forgo snazzy graphics. After you enter some preliminary data, each program gives you summary screens that allow you to change, say, the projected inflation rate and instantly see the effect on the rest of the equation. Other titles, including retirement programs from Fidelity Investments and T. Rowe Price Associates, require so much flipping back and forth between screens that it might discourage you from running too many "what if" scenarios.
While some titles such as Fidelity Retirement Planning Thinkware rely merely on actuarial data for key determinants such as life expectancy, Price Waterhouse--to its credit--provides additional explanations for many of the assumptions that it uses to determine whether you'll be able to meet your goals. While the Fidelity program operates on the premise that you'll draw down your savings principal during retirement, Price Waterhouse lets you calculate the effects of dipping into principal vs. just skimming off the interest that accrues.
LEASE OR BUY? Price Waterhouse is no longer the only accounting firm that has its own software: Ernst & Young recently began marketing a comprehensive planning program, Prosper, which is largely a clone of Reality Online's WealthBuilder, software that has been on the market for several years. (Prosper includes a few additional calculators, including one for 401(k) plans, and it doesn't offer any direct access to an online brokerage for electronic trading--unlike WealthBuilder.) While neither of them allows you to make planning projections in the same detail as Quicken or Price Waterhouse, WealthBuilder and Prosper handle many tasks that the others don't.
Indeed, using the pull-down menus, you can call up any of the modules that help you calculate, for instance, whether you should buy or lease a car and whether you should refinance your mortgage. In addition, WealthBuilder and Prosper can both plug into the Reuters Money Network, an online service that--for $10 to $25 a month--provides news, price quotes, and limited access to databases provided by mutual-fund tracker Morningstar and others. Unlike other programs reviewed, these two are available in Macintosh versions.
SHORT SHRIFT. Given the current multimedia rage, it's not surprising that a number of planning programs are appearing in CD-ROM format. Among the titles: Jonathan Pond's Personal Financial Planner, Money magazine's Your Best Money Moves Now, Dow Jones's Plan Ahead for Your Financial Future, and the just-released Quicken Parents' Guide to Money. These programs all use Vertigo Development Group's proprietary Activebooks interface, which combines distinct text with interactive worksheets and video clips into what it calls "electronic books."
But most of these programs come up short: The reading content is thin, the worksheets aren't as robust as in other programs, and the software lacks easy menus and strong hypertext capabilities that would let you jump around quickly among topics. The weakest program is Parents' Guide, which projects child-care costs by "regional averages"--in effect, giving the same estimate for residents of affluent McLean, Va., as for those of rural Culpepper, Va.
RISK VS. REWARD. Also disappointing are the low-cost retirement programs offered by three of the large mutual-fund families: Fidelity, Vanguard, and T. Rowe Price. The developers of each have cut enough corners--perhaps aiming to keep prices below $20--that the programs provide only a snapshot, rather than a detailed portrait, of your retirement prospects. The Fidelity program, for example, ignores the impact of taxes altogether in projecting the savings you'll need. Each program does include a soft sell for its family of funds, although mercifully at the end.
The best of the three: Vanguard, which includes an impressive asset-allocation section that shows the risk-reward trade-off between stocks and bonds. It lets you see how portfolios with different mixes of stocks and bonds performed all the way back to 1926.
Still, all of the mutual-fund programs do provide an educational service, showing the virtues of saving early. And when it comes to financial planning for major life events, you can't have too much information--and you can't start too soon. Dean Foust EDITED BY AMY DUNKIN