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Keying Into Income Needs

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Two of the top providers of financial planning software–Morningstar and Emerging Information Systems (EISI)–are heeding advisors’ calls for help in crafting retirement distribution strategies. EISI, developer of NaviPlan financial planning software, recently added retirement distribution planning features to its NaviPlan Standard and NaviPlan Extended software packages. Morningstar recently unveiled an educational Web site for advisors called the Retirement Income Education Center and plans to unleash a retirement income software product called Retirement Income Strategist in the third quarter.

The new NaviPlan USA Version 10.1 is a major upgrade to the NaviPlan planning software, says Linda Strachan, VP of product marketing at EISI, because it allows advisors to turn complex retirement distribution modeling into easy-to-understand scenarios. “We kept hearing over and over that advisors wanted an easy-to-use, fast way of incorporating ‘what-if’ scenarios” into a client’s retirement plan, and advisors also wanted tools to help them talk about retirement distribution to their clients, she says.

EISI, based in Winnipeg, Canada, has upgraded both versions of its software distributed in the U.S.–Standard and Extended. Standard is most widely used by advisors, and the new version lets them create or run pre-qualified strategies for various retirement distribution scenarios–liquidation order of assets, Social Security income options, additional post-retirement incomes and expenses, and annuitization options–in one place called the Retirement Scenario Manager, Strachan says. These strategies can also be shown to clients in side-by-side comparisons and included in client reports. Advisors can also develop what-if examples through Morningstar’s Retirement Income Education Center by entering client data about their ages, planned withdrawal rates, asset allocation (including annuities), and confidence level, and then illustrate cases side-by-side using Monte Carlo simulation.

Strachan says more and more of the big firms’ compliance departments are “insisting” that their advisors do multiple what-if scenarios for clients because they fear getting hit with “lawsuits 20 years down the line from clients who are broke.”

NaviPlan’s what-if scenarios differ from Morningstar’s in that they rely less on the use of Monte Carlo analysis to solve a client’s retirement distribution goals, Strachan says. EISI prefers to call it “probability analysis” because some big firms are moving away from using Monte Carlo analysis in their general reporting, she says. Big firms are “finding it’s difficult to get their advisors to talk to their clients and feel comfortable about discussing [Monte Carlo analysis] in simple terms.” Independent advisors, however, who Strachan says tend to be “better educated,” are embracing Monte Carlo analysis.

NaviPlan’s Standard also allows advisors to factor in clients’ medical expenses as a what-if scenario or incorporate the expenses as one of the “phases of retirement,” Strachan says. EISI is also exploring how to incorporate long-term care and healthcare expenses into Standard’s Retirement Scenario Manager. The new version of Standard also includes a Retirement Distribution Summary report, which helps advisors educate near-retirees on the inherent risks in retirement distribution planning.

NaviPlan Extended now includes a Financial Assessment option, which allows advisors to a client’s retirement, education, major purchase goals, and perform basic insurance and estate planning–in as little as five to 10 minutes. –Melanie Waddell


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