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Retirement Planning > Retirement Investing

Guiding Clients to Retirement Income Safety

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Most advisors excel when it comes to counseling clients 10 years or more from retirement. They put in place the usual estate and risk management systems, and invest the client’s money with an accumulation focus. Asked if they’ve helped a client traverse the line between earning a real paycheck and converting accumulated assets into a simulated paycheck, though, relatively few confess to having done so.

I know this because I regularly ask this question of audiences when I speak on practice management. And the finding tells me that advisors have a lot to learn, because running the numbers to convince yourself — not to mention, your clients — that they won’t outlive their savings, as well as dealing with the anxiety most clients face prior to quitting their jobs, constitutes a new skill set for many advisors. At the very least, good software is needed for the planning part of the exercise.

Think this doesn’t apply to you? Think again. Baby boomers — clients born between 1946 and 1964 — will constitute the bulk of everyone’s clientele 10 years from now. As we all age together, advisors will need to gain competency in retirement-income planning. Which is why new systems coming online for your use, like Morningstar’s Retirement Income Strategist (, suggest new and specialized software is needed for the task at hand.

Or is it? Hasn’t traditional financial planning software always incorporated retirement income planning tools? Perhaps there’s validity to both approaches. Morningstar’s new software is designed to be used as a stand-alone retirement income planning tool, whereas leading planning software, like Naviplan ( and MoneyGuidePro (, are more broad-based but deliver similar output. All systems are Web-based, though you can operate Naviplan from desktop software as well. The question is… which is right for you?

The answer, as it should, begins with your clients and what kind of retirement they’ll have, and ends with your business model and how much time you can afford to spend on planning. Each of these sophisticated planning systems offers slightly different types of analysis and output.

Says David McClellan, Morningstar’s VP of Advisor Business Development, “Retirement Income Strategist is good for clients with $300,000 to $3 million in assets, and the planner can find out within 20 minutes whether his client has an income gap. After that he can layer on other planning, if desired. It’s an iterative process that allows the advisor to control the time he spends on a client so he can be more profitable.” In other words, Retirement Income Strategist is a tool that will work for most advisors, although Morningstar is targeting it at IBD and wirehouse reps. “Retirement Income Strategist will appeal most to the advisor who doesn’t consider herself first and foremost a financial planner, as opposed to, say, the fee-only advisor,” says McClellan.

The limited scope of Retirement Income Strategist is part of what makes it possible to generate an outcome with it in just 20 minutes. Naviplan Standard and Extended are, by contrast, full-featured financial planning packages. The common complaint by advisors with limited planning engagements has been that programs like Naviplan require more data input than should be needed to generate a planning recommendation of limited scope.

To remedy this, Naviplan has created what it calls its Retirement Scenario Manager. Linda Strachan, Ph.D., CFP and VP of product marketing for Emerging Information Systems, Naviplan’s developer, says, “Retirement Scenario Manager is an attempt to get the functionality of Naviplan Extended into Naviplan Standard. It’s essentially a wizard or centralized location to do all your retirement planning. You don’t need to go back to the raw data to create your ‘what-ifs.’” With Retirement Scenario Manager, Naviplan Standard takes on the ease of use of Morningstar’s competing product.

MoneyGuidePro doesn’t use a wizard, per se, because it’s always been a financial planning tool strong on retirement planning. Goals related to other planning avenues like accumulating the funds necessary to educate one’s children or leaving a bequest are handled in the context of planning for all of a client’s goals. Says Bob Curtis, MoneyGuidePro’s founder, “We believe the advisor should create a picture of what the client wants his retirement to look like, and that’s our strength.” MoneyGuidePro’s latest “Boomer Edition” (Version 7.2) has enhanced retirement distribution planning capabilities, says Curtis.

Looking at the types of inputs required by each of our resources teaches us a lot about what must be considered to do a comprehensive analysis of the client’s retirement income needs. Morningstar and Naviplan take a similar approach, asking for inputs like key assumptions (rate of inflation, rates of return on investments, etc.), owned assets (including annuities, qualified accounts, etc.), Social Security elections, basic and extraordinary retirement expenses, and so on. Naviplan throws in some other useful tools, like the ability to specify the order in which different accounts will be liquidated to provide cash flow from income and then capital, as well as pre-defined what-if scenarios (e.g., retire two years early or life expectancy plus five years) for advisors wanting an even more automated process.

MoneyGuidePro, as alluded to above, requires the entry of investment and expense data, but does so in the context of goals. For example, it is in the context of the retirement goal that the advisor will input life expectancy, living expense and inflation expectations. Clicking on “car/truck” as a goal requires data such as the year of purchase, cost of vehicle, and how often new vehicles will be purchased during retirement.

Other MoneyGuidePro goals in which advisors enter context-specific assumptions or data are:

o Celebration

o College

o Gift or Donation

o Leave Bequest

o Major Purchase

o New Home

o Private School

o Provide for Someone’s Care

o Start Business

o Travel

o Wedding

o Other

The different inputs required by each retirement planning system suggest what the developers believe are their systems’ particular strengths. MoneyGuidePro’s goal-oriented planning system is its greatest advantage. “Naviplan’s retirement planning is done within a much broader financial planning context,” says Dr. Strachan, which is its advantage. And Morningstar Retirement Income Strategist’s easy-input screens are its greatest advantage — along with its Monte Carlo output.

Says McClellan, “We’ve got Ibbotson ‘under the hood,’” referring to Morningstar’s purchase of Ibbotson Associates, an authority on asset allocation and portfolio implementation. “Retirement Income Strategist therefore presents its results using Monte Carlo analysis and offering a base case and recommended case, side by side.”

Naviplan and MoneyGuidePro, as well, use Monte Carlo analysis, but not necessarily as their primary analytical tool. Says Dr. Strachan, “We’ve found that Monte Carlo analysis isn’t always understandable to clients, or even to advisors. We use it more as a backup to the story more than as the story. We put more emphasis on integrating the retirement plan into the client’s full financial plan.” Meaning retirement goals and estate planning goals, for example, must be planned for holistically. “If the client wants to do charitable giving, that’s going to have an impact on his retirement. Simpler planning tools are a good way to get folks engaged but, if the advisor’s goal is to maintain a relationship with the client going forward, she needs the planning tools as well,” says Strachan.

Curtis takes issue with another staple of most retirement planning systems: the colorful, long-term graph showing when the client will run out of money. “First,” says Curtis, “this graph can be misleading. It shows the portfolio but it doesn’t show the effect on retirement of resources like pension or Social Security income, or even home equity, in most cases.”

He also feels strongly that advisors should pay more attention to the way they define the retirement period because the client’s goal of retiring doesn’t exist to the exclusion of other goals. “We want to see all the client’s goals listed separately. In addition to retiring, he might want to buy a new car every four years, or incur living expenses related to a level of comfort not inherent in his ‘base’ retirement expenses. Then we can calculate degrees of success for each goal.” Having done so, MoneyGuidePro then produces not a running-out-of-money graph, but a graph repositioned so that assets last throughout the client’s life expectancy though his various goals may or may not be fully funded. It’s an entirely different paradigm than that of most other retirement planning systems.

You really can’t go wrong choosing any of these three systems. As said earlier, the choice will depend on your clients’ needs and your own business model. One program’s output may be more suitable for your clients than another. Or, if financial planning is secondary among your client services, the program that completes the planning process most expeditiously might be your preference. Finally, one system’s philosophy of planning might agree with you more than another’s. Just know that you’ll probably be doing more and more of this type of planning as your clients age, so find the system now that is right for you.


David J. Drucker is an independent financial advisor; see


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