Dick and Jane, of Michigan, are both 62 and still working. Together, they earn $100,000 a year and have $400,000 saved for retirement. They own a home worth $325,000 with no mortgage and expect to receive a combined $3,300 in monthly Social Security benefits at full retirement age. Are they in good shape to retire in a few years?
It's one of the most fundamental retirement-planning questions, but the answer is difficult to judge. Financial advisers often assume the couple will need to spend about as much in retirement as in the working years after factoring out savings and work-related expenses, for example, but some retirees say they can get by on substantially less.
Hammering out answers to questions like these that will work for retirees is the essence of the relationship between an adviser and client. And increasingly, that relationship is being automated. So-called robo-advisers can digitally manage and rebalance a portfolio to custom risk tolerance specifications for fees that are typically about a quarter or less of what live, asset-based financial advisers have historically charged.
Now, automation is taking over other tasks, such as testing whether a portfolio will last through retirement, which Social Security claiming strategy is best and whether downsizing a primary home will make a retirement plan work.
PIEtech, Inc., a large provider of software to financial advisers, for example, has begun offering a version that advisers can walk through with clients or prospective customers.
One firm using the myMoneyGuide software is TD Ameritrade, so I asked the folks at TD to walk me through what the software says about the sample couple in the introduction to this article.
As they do for free for all people requesting the service, the TD representative asked me follow-up questions about the couple, such as risk tolerance and their flexibility on retirement dates, as well as more probing questions about what the couple wants to actually do in retirement. (That last one has to do with calculating how much a specific retirement lifestyle will cost).
"A lot of people don't put much vision into their retirement financial plan. It's just this nebulous thing," said Nicole Cope, a senior manager for TD Ameritrade's guidance consulting group. Through the conversation, she said, advisers drill down on how clients expect to spend their time in retirement and, hence, what that will cost.
After a brief conversation and a few custom alterations to the software, Cope determined the example couple was far short of the savings they will need to replicate their lifestyle, even with aggressive saving in the few years leading up to retirement. But she showed, again using the software, how a few tweaks, such as working longer or forgoing new cars, could make an impact. And of course, if the couple expects to spend far less in retirement, the math gets easier.
As financial technology moves forward, automating more and more of these decisions, it will be interesting to see what retirement savers will continue to find valuable enough to pay for.
PIEtech officials, eager not to step on client toes, point out that the free intake software doesn't seek to replace the live financial adviser. It doesn't create income plans for retirees pulling living expenses from a portfolio, model how much a Roth IRA conversion will save on an individual's taxes or do the math on whether to take a lump sum or a monthly pension. And of course, it provides answers at one point in time, while a live adviser can continually monitor and give advice as situations change.
Still, the exercise helps savers clarify exactly what they want from an adviser. Do I want primarily investment management? A Social Security claiming strategy? Advice on long-term care insurance? All of the above on a one-time basis, or ongoing?
Knowing these answers will go a long way toward sorting out your best strategy for making the money last.
