Personal Capital takes aim at retirement income

The digital adviser's latest feature uses tax-efficient withdrawals to extend retirement savings

Aug 31, 2018 @ 3:51 pm

By Ryan W. Neal

Personal Capital's latest feature on its robo platform helps clients create a tax-efficient retirement income strategy.

Retirement Paycheck leverages account level tax status, household tax filing status, and the latest state and federal tax data to show how investors in or near retirement can withdraw money from the right mix of accounts to avoid penalties.

Retirement Paycheck is built into Personal Capital's retirement planning tool so investors can start preparing for tax implications of their retirement plan long before they retire. If anything changes around spending or goals, such as how much a client wants to leave for an heir, they can adjust it anytime using the tool.

(More: Personal Capital is the latest robo to offer SRI)

Personal Capital designed Retirement Paycheck to be used by its team of human advisers as well as clients, said director of advisory services Amin Dabit. For example, if a Roth conversion or tax harvesting strategy is appropriate, the tool will alert the client to get in touch with their Personal Capital adviser.

According to a Transamerica Retirement Survey, more than half of GenXers and Baby Boomer investors cite outliving their savings and investments as their greatest retirement fears. According to Personal Capital, a tax-efficient withdrawal strategy can increase the chances of not running out of money by 8%,citing additional research from Vanguard.

"People in the window of retirement start to go through a psychological shift," Mr. Dabit said. "Because of that psychological shift, they end up making very short-term decisions on what their needs are for the next year or two, and not really factoring in a distribution strategy for each different account."

While digital advice often gets stereotyped as products meant to appeal to and attract millennial investors, Mr. Dabit said the average Personal Capital client is in their 40's, and most people in the private client group — reserved for clients with more than $1 million invested through Personal Capital — are in their 50s.

"We heard direct feedback from our clients saying, 'we want help visualizing and having a distribution strategy for retirement," he added.

(More: Retirement-income theories confront reality)

Mark Henry, an estate planner and founder of Alloy Wealth Management, said that while Personal Capital's technology looks great, he would like it to address in simple terms how stable a retiree's income is in the face of market volatility.

"Think of it this way. If you need 5% out of your investment accounts to live on and are forced to take it at the wrong time, like when your accounts are down maybe 10%, well, you just lowered your accounts 15% in one year," Mr. Henry said. "However, if you had 70% of the needed income stable and only required 30% to come from investment accounts, now you need far less out of the investment accounts. Or maybe you choose to live on a little less until the investment accounts come back positive."

Personal Capital isn't the only firm looking at technology to help people with fears about retirement. United Income and True Link both feature digital advice geared towards retirees, and startup Blueprint Income wants to offer annuities online using a Netflix-style subscription model.

Jamie Hopkins, an insurance expert at The American College of Financial Services, expects to see more products as financial technology continues to develop.

"The future of retirement income is tied to the future of robo-advice," Mr. Hopkins said. "Today, robo-advice really has not been able to crack the retirement income challenge, but the technology will get there."


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