Charles Schwab Corp. office building in New York. (Photo: Victor J. Blue/Bloomberg)

Many Americans who are planning to retire view the process of managing income as complicated and cumbersome. Charles Schwab thinks it has a solution.

Schwab announced Wednesday that in January it will launch Schwab Intelligent Income, which it says is designed for people who want a straightforward way to pay themselves in retirement — or at any other time — from their investment portfolios.

The service will answer questions about how much to withdraw, how to invest based on individual goals and time horizon and how to withdraw from a combination of taxable, nontaxable and Roth accounts in a tax-smart way.

This offering comes at a time when Americans within five years of retiring said in response to a survey that they were overwhelmed by several concerns:

  • 72%: running out of money in retirement
  • 57%: determining how much they can spend in retirement
  • 54%: managing the tax implications of withdrawing from multiple accounts

The survey found that pre-retirees were more burdened by retirement income-related concerns than by classic financial challenges such as buying a home, paying for college and losing a job.

Logica Research conducted the online poll from June 27 to July 16 among 1,000 Americans 55 and older with $100,000 or more in investable assets.

“The transition from diligent saving and investing to creating steady income from that portfolio can be overwhelming,” Jonathan Craig, head of investor services at Charles Schwab, said in a statement.

“Schwab Intelligent Income solves the complexity of doing it on your own and removes the friction inherent in other income services by providing a flexible, low cost, and smart way to generate a predictable paycheck from your portfolio.”

Overcoming Complexity

Schwab said Schwab Intelligent Income would use the firm’s robo-advisor for portfolio management. It will project, manage and automate multiple retirement income streams for no additional fee. Its features include the following:

  1. A tax-smart approach will implement a withdrawal strategy across taxable, IRA and Roth IRA accounts, required minimum distribution considerations, tax-loss harvesting, dividends and income. It will also automatically rebalance a portfolio back to the investor’s target asset allocation as money is distributed from the portfolio.
  2. A real-time digital dashboard will enable investors to view their portfolio, recurring withdrawal and the probability of meeting their withdrawal goals, with the flexibility to forecast and make changes based on their income needs.
  3. The service will provide guidance on generating a predictable monthly withdrawal based on the investor’s specific financial situation, delivered through a customized, tax-efficient and low-cost automated approach that keeps investors on track. Schwab said investment professionals would be available around the clock year-round.
  4. Income will be deposited automatically into a Schwab High Yield Investor Checking account (linked to a Schwab One brokerage account) or into any other external bank account.
  5. Investors will have flexibility to stop, start and adjust withdrawal amount, frequency and deposit location without penalty.
  6. The tool will provide ongoing monitoring and alerts that assess real-time portfolio performance against the plan and notify clients if their monthly withdrawal rate is at risk based on market movements or other factors.

Schwab said that on top of Intelligent Income, it will make available the premium version of the firm’s robo-advisor for investors who want a comprehensive financial plan and unlimited guidance from a certified financial planner. This would include annuities, which is not a component in Schwab Intelligent Income, according to a spokeswoman.

Fine With Digital

Tobin McDaniel, senior vice president of digital advice and innovation at Charles Schwab, noted in the statement that 73% of pre-retirees in the survey said they were comfortable using technology to manage their retirement income.

“More than half of our existing digital advice clients are over the age of 50, and Schwab Intelligent Income aims to solve the retirement income concerns that are so common for this population — from the difficulty of managing multiple income sources to the fear of running out of money.”

In its announcement, Schwab said investors who want to enroll in the new service will answer a short set of questions that assess their financial situation, time horizon and risk tolerance. After that, the tool will recommend the appropriate strategy across their taxable and retirement accounts.

The portfolios comprise low-cost exchange-traded funds from Schwab and third-party providers, including Vanguard, iShares and Invesco.

Schwab Intelligent Portfolios has a $5,000 minimum and charges no advisory fee. The premium version has a $25,000 minimum and charges a one-time $300 fee for planning and a $30 monthly subscription — $90 billed quarterly.

Clients in Schwab Intelligent Portfolios and its premium sibling pay the operating expenses on the ETFs in the portfolio, which includes a combination of Schwab ETFs and funds from third-party providers.

Based on a client’s risk profile, a portion of the portfolio is placed in FDIC-insured deposit accounts at Schwab Bank.

The premium version of Schwab Intelligent Portfolios also features a satisfaction guarantee, which states that if a client is not completely satisfied for any reason, Schwab will refund any related fee or commission and work with the client to make things right.

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