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Finding flexibility with retirement income planning software

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Retirement income planning (RIP, no pun intended) software has come a long way and continues to improve.

Industry veterans will remember the days when the standard retirement income plan was a colorful, albeit indecipherable, bar chart or mountain chart.

The graph’s left side showed clients’ asset balance growing in a predictable manner until retirement, based on a projected, and often excessively optimistic, rate of return. The right side showed the declining, but still predictable, post-retirement balance as the clients spent their assets. 

Many programs focused almost exclusively on the asset-accumulation phase. It made sense because that’s where the bulk of the Boomers’ money and the accompanying commissions or fees were to be found. RIP was almost an afterthought. A single distribution rate was applied to all clients’ assets and annual spending increased in line with inflation. Doubtful data in, doubtful data out. 

The lack of planning precision led some advisors to develop RIP spreadsheets, but that approach had and still has limits. Data entered directly into a spreadsheet are trapped there.

A more efficient approach is to enter the data into a database, have the spreadsheet retrieve what it needs from the database and then return to results, often to a word processing document for review and presentation. But that approach is much easier in theory than practice unless the advisor or a staff member has the requisite programming skills.

Current RIP software gives advisors more planning flexibility and does a much better job at handling real-life complexity. Some of the newer applications provide comprehensive RIP while others focus on specific problems. I recently asked several experienced advisors about their software usage and also spoke with several developers who are doing interesting work.

Always in seeking mode
Diane Pearson, CFP, PPC, with Pittsburgh-based Legend Financial Advisors Inc., is a veteran of the Microsoft- Excel-spreadsheet RIP era. There were no programs available when she started her career so the firm used financial calculators and spreadsheets. They eventually switched over to several products from Money Tree Software, which allowed users to input planning data once instead of multiple times.

Like many other advisors, the firm’s advisors are “always in seeking mode” for programs that fit the firm’s planning approach more closely, she says. That willingness to experiment led the firm to work with MoneyGuidePro for about a year before switching to eMoney’s program early this summer.

Both MoneyGuidePro and eMoney have advantages and disadvantages, says Pearson, but a key feature with eMoney is the ability to have live, online interactive sessions with clients. About half the firm’s clients are not local, she says, and the ability to work together via the Web is a big benefit for the firm.

“For example, we did a calculation with a client this morning,” says Pearson. “They are saving in their 401(k) but they said they’re not increasing how much they’re saving every year. So, we changed the growth factor from three percent down to zero. We were able to do that very easily and simply and able to show a new projection to the client right away.”

One program that Legend Financial Advisors has used for many years is the BNA Income Tax Planner. They’ve continued using that package for tax projections because no other application provides the desired level of detail. The firm’s tax projections cover “everything from evaluating how this year’s mutual fund distributions are going to affect their taxes to determining if we need to change the fourth quarter estimate based upon how much those distributions are going to be,” says Pearson.

Pearson recommends that advisors considering RIP software weigh the benefits of using applications that offer one-time data entry and account aggregation. She’s found that having to enter information in three or four places kills productivity and using aggregation software brings “a lot of very valuable financial planning information into the software.”

Using multiple tools
Steve Stanganelli, CFP, CRPC, with Clear View Wealth Advisors, LLC in Amesbury, Massachusetts, is another advisor constantly seeking better RIP tools.

That search has led him to use multiple programs simultaneously. To determine the retirement plan horizon, he starts with MoneyGuidePro’s estimate of life expectancy, which he then adjusts based on clients’ responses about their personal and family health history and current lifestyle. 

The life expectancy forecast he uses for adjustments was developed by University of Pennsylvania’s Wharton School and is available online. Stanganelli uses the resulting life expectancy figure and the clients’ earning history as inputs to the Social Security Timing website, which allows him to review Social Security optimization strategies. 

Clients need a sustainable portfolio-withdrawal plan to avoid depleting their funds too quickly and he relies on Retirement Planner 2.0 from RetireSoft for that calculation. The program includes simulations and tax projections, as well.

Created by a former actuary and current CFP® professional, it answers the question of how much can be withdrawn and how long the client’s portfolio will last.  It incorporates Monte Carlo and taxes as part of its calculation and is much quicker to use than even MGP, he says. 

His current assortment of tools gets the job done for Stanganelli, but he’s still seeking a single solution. “An ideal software would be something that brings together the philosophies of cash flow planning as well as bucket strategy that I tend to utilize for withdrawals and also trying to determine the sustainable withdrawal percentage,” he says.

“I haven’t found one program that does all of those things in one. I’ve found separate pieces and, then, I try to use them as comparative to each other.” 

The big picture
RIP requires simultaneous consideration of multiple factors. For example, if the client delays the start of Social Security benefits, how does that decision affect retirement plan distributions and the tax liability on those distributions? Should the client withdraw from tax-deferred or tax-free accounts like Roth IRAs?

How does account location (tax-free or tax-deferred) affect the other variables? How does asset allocation affect cash flow and income taxes?

Evaluating and optimizing these moving parts is the goal for the Income Solver application, which was released November 16. According to Bill Meyer, CEO of Retiree Inc., the program’s developer, the software will allow advisors to simultaneously evaluate “asset allocation, withdrawal sequencing, Social Security optimization and detailed tax logic.” 

You probably recognize Meyer’s name from his role in developing the popular Social Security optimization program, Social Security Analyzer, with Dr. Bill Reichenstein of Baylor University. Meyer and Reichenstein have also co-authored recent research on withdrawal strategies and the research results demonstrate the potential impact of withdrawal optimization.

“If you apply (the strategies) in the right way to a client case, we’re adding up to seven years more (income) longevity,” says Meyer. “The key to our application is that by getting into these details, the advisor can find more money for their clients and manage this. So, we’re putting them in that seat where every year they can manage that drawdown in a smart way and it’s amazing how much more money you can find if you really look at those details.” Income Solver is a subscription-based Web service with access fees payable monthly or annually. The standalone Income Solver costs $99 per month ($1,000 for a one-time annual payment). The Social Security Analyzer optimization program adds $50 per month or $500 per year.

Getting specialized

Health care costs have become a major expense for retirees, as illustrated by Fidelity’s quarter-million dollar-plus lifetime medical expense projections for retirees. Danvers, Massachusetts-based HealthView Services focuses on these costs and how consumers can plan for them.

Ron Mastrogiovanni, HealthView’s founder and CEO, started the company in 2008 with the goal of filling a perceived gap in financial planning’s approach to health care. “We focus on health care in terms of what will it cost to fund health care in retirement from a personal perspective, not a generic perspective because it’s so broad,” he says.

“You have to look at someone’s health conditions, life expectancy, income level, where they plan to live and more. All of this is combined to come up with a number that makes sense to fund that person’s health care costs in retirement. And, then, secondly, what do they need to save today to actually get there?”

The analysis also considers Social Security planning for Medicare means-testing, premiums and tax surcharges which are deducted directly from a recipient’s Social Security check.

“Those are the types of issues we look at as well as long-term care, which we also look at as a separate entity,” he adds.

“So, advisors and their clients can run these specific applications and then look at what do you need to save today to address each of these issues.” Standard advisor pricing ranges from $249 for a single application to $700 for the bundled platform, which includes both health care and Medicare apps. 


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