Personal Finance

Retirees, Automate Your Spend-Down Plan

It's one of the thorniest questions retirees face: How much can you safely spend each year? And once you've figured that out, which accounts should you tap first, how do you minimize taxes, and how do you keep your remaining portfolio in balance?

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A new generation of online advisory services promises to help retirees answer these questions and, in some cases, manage the whole drawdown process. Like existing "robo advisers," these services rely on software to generate automated advice. Some also offer access to human advisers. But unlike most established robo advisers, the services are aimed squarely at retirees.

Although there's plenty of retirement-planning advice available online, most of it focuses on how to accumulate a nest egg, not spend it down. And the drawdown advice that is available often makes simplistic assumptions, such as expecting that your spending will remain constant each year in retirement.

The new online services take a more sophisticated approach, aiming to design drawdown strategies tailored to a retiree's personal goals, life expectancy and spending needs. They can help coordinate the many sources of income a typical retiree receives--including Social Security, investment income and required minimum distributions--to form a tax-efficient drawdown plan. In many cases, you can take advantage of these services while keeping your money in your current investments. On the down side, the services tend to be pricier than the existing robo advisers, which often charge 0.25% of assets or less. The firms say their fees are justified by the more complex services they deliver.

The Income Strategy software aims to make retirees' assets last as long as possible by coordinating spending plans with Social Security, taxes, Roth IRA conversions and other factors. Currently, Income Strategy offers one-year access to the software, a personalized drawdown strategy report, a recommended Social Security claiming strategy and up to two hours with a financial professional for $500.

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Early this year, Income Strategy will offer two new services, says William Meyer, managing principal. For retirees who want to manage their own money, the firm will offer not only access to the software but also specific trade recommendations to help draw down assets efficiently. The fee will be about $20 a month.

True Link , a robo adviser for retirees, launched late last year and helps implement a "bucket" strategy, with specific assets set aside for each year of retirement. Money you need this year might be held in money-market or high-interest checking accounts, while money you need five years from now can go into defined-maturity bond funds maturing in five years, says Kai Stinchcombe, chief executive officer of True Link. Underlying investments include ETFs and bond ladders, and the fee is 0.87% annually.

United Income , which will become publicly available in mid 2017, aims to offer highly personalized drawdown plans. United Income will help retirees build portfolios of bond ladders, deferred annuities and other investments; tell them which accounts to tap first; and send them a regular retirement paycheck.

Instead of assuming spending will remain constant throughout retirement, the service will create a personalized spending forecast based on your gender, education level and other demographic information. Women, for example, "tend to look a lot more frugal relative to men," says Matt Fellowes, chief executive officer and founder of financial-advice firm Hello-Wallet. United Income will also rely on demographic data, along with personal health information, to generate personalized life-span estimates. Fees are not yet disclosed.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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