Planning for the Soft(ware) Life


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Automated tools can smooth-and shorten-the road to retirement.

The findings are unsettling, to say the least. A hefty 24 percent of workers age 45 or older now say they plan to postpone their retirement age, up 9 percentage points from last year, according to the annual Retirement Confidence Survey. A double-whammy of faltering stock prices and low interest rates is causing much of the public to reassess their retirement strategies.

“As a great number of baby boomers age and see the future coming to meet them, they are starting to realize that they must plan for the inevitable, and it will require a large amount of capital to provide for their lifestyle through life expectancy,” says Mike Vitkauskas, president of Money Tree Software, based in Philomath, Ore., which has several products in the retirement planning field.

Managing Money During Retirement

Partner Insights

For Roger and Kevin Katzenmaier, the masterminds behind ISG Planning Software, retirement planning has two very distinct phases-one for accumulating capital, another for generating long-term income. They feel the second phase often gets shortchanged. Here they share some tips for managing money during retirement.
1. Two Bad Years Is All That It Takes. Selling investments on a regular basis magnifies the effects of market variability. In order for retirees to gain control of their financial destiny, it is first necessary for them to gain control over when their investments are sold. Plans that automatically force retirees to sell investments on a regular basis are vulnerable to highly unpredictable outcomes.
2. Monte Carlo is a Measurement Tool-Not a Solution. Monte Carlo analysis provides a way to quantify the effects of market variability. The technique tests many randomized market scenarios to predict the range of outcomes that could occur. There are some limitations, such as it is difficult to establish randomized scenarios that accurately reflect real market situations. It also assumes decisions will be made without consideration for actual market conditions. This is not a good idea during retirement.
3. If the Goal is Investment Income, It's a Good Idea to Have an Investment Income Plan. Allocate assets in such a way that income is provided from fixed-rate investments for a pre-determined number of years. This creates a period of time when stock investments can be held for the long-term and through a down market if necessary.
4. Owning a Bond Fund is Not the Same as Owning Bonds. The value of a bond fund fluctuates, it never matures, and there is no promise to pay. Therefore, individual bond investments work well for providing dependable near-term income, but bond funds do not. One good way to maintain a steady investment income is to purchase a series of bonds with staggered maturities. This is called an Income Ladder. For example, you could purchase a bond that matures after one year, another one that matures after two years, and so on.
5. It's Not Enough for Markets to "Recover." The relevant question for retirees is when will the market provide a historic average rate of return? If a retiree creates a financial plan that assumes historic rates of return, the retiree should try to only sell investments after they achieve historic rates of return.

“Particularly, the recent market downturn has made them aware that [retirement] is no cakewalk, and the planning must start now to assure the future,” he adds.

The good news for personal financial planners is that software suppliers as diverse as Morningstar, AccountantsWorld, Thomson Financial, Brentmark, and Money Tree are devising tools to help them formulate the most practical plans for clients planning to retire.

Joel Framson, CPA and partner with Los Angeles-based Glowacki and Framson Financial Advisors, notes, “In the last three years, we’ve seen the planning process become more important. Clients are more interested in their future and in creating a road map. They want to visualize where they are, and what retirement looks like.”

Framson’s firm is a fee-only financial planning and investment advisory practice. However, Framson and his partner prepare three to four tax returns each year for their largest and oldest clients. In addition, the firm has strategic alliances with other CPA firms. Framson says, “In order to create a family office environment, we have close relationships with law firms as well as CPA firms to give clients a one-stop shop experience.”

Clients are asked to fill out a financial satisfaction survey. “At first, we don’t look at numbers but at the big picture-what’s the family like, what does money mean to them, and what are their experiences with money? We are not just money managers; we’re focusing on how money affects our clients’ lives,” says Framson.

He and his partner complete approximately four retirement plans per month, charging from $2,000 up to $7,000 for more complex plans that include estate and tax planning.

They use NaviPlan from Winnipeg-based EISI, for retirement planning, and they previously used ExecPlan from Sawhney Systems, but found that it was generally too detailed for most clients to understand and more difficult to input. “NaviPlan can be used with a client sitting in front of us because making changes is very easy, and its long-term cash flow graph changes instantly. This helps them to immediately see the results of changes in the planning assumptions,” he adds.

Suite vs. Discrete

When it comes to retirement planning software, there is an ongoing debate over whether a stand-alone program or a suite will better serve an advisor’s clients.

Specialized discrete programs have the advantage of being quick to get into and generate reports. However, the disadvantage is that various reports from disparate programs may not integrate well when putting together a complete retirement road map.

A suite that includes a retirement planning module will enable users to enter data only once, yet still can generate a wide variety of reports, drawing together data from all over the system. Reports are integrated so that an estate tax projection or life insurance needs analysis will be based on the exact numbers that were created in the retirement projection. Suites are also more detailed, and allow for more flexibility and control. However, stand-alone products are more appropriate for individuals who, are looking for a lightweight, quick, and easy plan.

For example, Money Tree’s Silver Financial Planner is a popular stand-alone product. Mark Greenberg, software developer for Money Tree, says, “We have larger firms with hundreds of licenses for Silver. This is due more to price, and the needs of the clients not requiring the detail of our suite.”

Silver Financial Planner costs $350, while the Money Tree suite’s four modules are bundled for $2,000.

“Both the suite and Silver may be shared and used by multiple users. We do have users that run both the suite and Silver. They use Silver in the field and the suite in the office to compile a more robust plan. So, the nature of the practice is the largest determinant for deciding which Money Tree Software application is right for the job,” he adds.

Dean Mioli, president of Philadelphia-based Adam Dean Financial Management, feels using a suite for retirement planning allows him to look at the plan in a comprehensive manner. He uses ExecPlan, which primarily focuses on cash flow, but also integrates tax, estate planning, and risk management. “I can enter information on the balance sheet, and then the money market account can go to cash flow and then into tax-it’s one-time input, and I always have the ability to modify anything that appears irregular,” says Mioli.

Combining Products

But it’s not just a matter of using a retirement planning package over even a financial planning suite, says Bernard Kiley, CPA and CFP of Morristown, N.J.-based Capital Management.

Distinct Types of Plans

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