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Retirement fears? Free financial tools can help

Retirement savings statistics are usually pretty depressing. A recent study from the National Institute on Retirement Security found that the median retirement account balance across all age groups is $3,000. Newslook

Eric McWhinnie, Wall St. Cheat Sheet 6:27 p.m. EDT March 15, 2014

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Here's one retirement fundamental: Recognize that your savings today affect income payments tomorrow.(Photo: Thinkstock)

Retirement is nothing but an afterthought for millions of Americans. Households are increasingly becoming hindered by stagnant wages, rising living expenses, and an overall weak labor market. Making matters worse, many people fall victim to procrastination when preparing for the future. However, there are two clever ways to help start the retirement planning process — free of charge.

The first trick is to understand that the day will likely come when you can no longer work full time. This might be a difficult concept for younger generations to realize, but fortunately, there's an app for that. In order to help people face the reality of aging, Bank of America's Merrill Edge recently introduced a new Face Retirement mobile app, which builds on the success of the Web-based tool originally launched in 2012. The free app provides users with a lifelike 3-D animation of their future self, including wrinkles and gray hair.

"It's an eye-opening experience to see what you may look like 40 years in the future," said Alok Prasad, head of Merrill Edge. "Stanford University research — and the experience of thousands of Merrill Edge customers — show that people brave enough to look into the crystal ball are much more likely to take control of their retirement planning. It's a vivid reminder that everything you do today impacts your future."

Almost 1 million individuals have used the Face Retirement tool. Interestingly, 60% of participants chose to learn more about retirement and planning for the future. This is encouraging since the majority of mass affluent Americans have a long way to go before reaching their retirement goals. In 2013, 61% of affluent Americans said they were actively delaying retirement, compared to 47% just two years earlier, according to Merrill Edge.

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The second free trick to retirement planning is to recognize that your savings today affect income payments tomorrow. With uncertainty surrounding factors such as investment returns, inflation rates, and living expenses, many Americans struggle to understand how current retirement contributions will translate intoretirement income. Gopi Shah Goda, a senior research scholar at the Stanford Institute for Economic Policy Research, recently conducted a study on how saving decisions can be positively affected by easy-to-understand income projections.

The study involved nearly 17,000 employees at the University of Minnesota who were eligible to participate in either of two Voluntary Retirement Plans (VRPs). Employees were randomly assigned into a control group or a treatment group. The treatment group received a four-page color brochure through the mail that contained account balance and income projections, while the control group received nothing.

Significant differences were found between the two groups. While approximately 4% of the control group made changes to their contribution amounts, 5.25% of employees in the treatment group made changes, representing an increase of approximately 30%. This includes any type of changes, so some employees may have reduced their contributions, but the overall trend showed positive changes. The treatment group increased contributions by an average of $169 per year, while the control group increased their contributions by only $83 per year. The figure below provides an example of what the treatment group received. As you can see, an extra $200 per pay period (bi-weekly) could result in an additional $76,000 in savings at retirement. Furthermore, that extra $200 could add $4,800 in annual income during retirement.

"While the effect of the projections on contribution levels was modest, the intervention may have had a larger impact on the saving process by improving the employees' ability to assess their financial security," said Shah Goda, in the report. "We supplemented our experiment with a follow-up survey which asked employees additional information about their retirement saving and their financial literacy. Among survey respondents, those in the income treatment group were more likely to report having recently engaged in retirement planning, feeling better informed about retirement planning, and feeling more certain about the amount of income they expect to have in retirement than those in the control group."

Since several factors obviously affect how contributions will ultimately impact retirees, everybody will experience different results. However, the point is to bring attention to the matter and start the retirement planning process, which is a lifelong endeavor filled with life's little surprises. Individuals looking to customize their own retirement projections can find free online calculators at many websites, includingVanguard, MassMutual, and Bankrate.

Wall St. Cheat Sheet[4] is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.

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