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Where's my roboadvisor for retirement?

Narrative describing my own challenge regarding retirement planning

Photo of Tom Short
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I've been working and saving for retirement for most of my career - 30+ years. During that time I've ridden the ups and downs of the stock market, including some nice gains during the first dot com era, and some significant losses in the following crash, and then again in the 2008 economic meltdown.

My wife and I have both changed jobs and companies through the years. These changes necessitate taking our 401k money and rolling it into our respective IRAs. At one stage we both also took some money out of our IRAs and converted it into ROTH IRAs. And as long as we're both working we both also contribute to our company's 401k plans. 

If you add those up we have six separate accounts to manage; plus one joint after tax portfolio of stocks and funds. That's a lot of complexity to navigate in order to maintain the recommended model portfolio balance while ensuring tax effectiveness of the investments. 

I realized a long time ago that I'd rather leave investment decisions to the pros so I could focus my time and energy on making money doing what I do for a living. The problem is I never found an investment advisor I liked, felt I could trust with our entire portfolio, and felt represented good value for money. 

Enter the roboadvisors. As soon as I read an article about this new type of fintech offering I was hooked. I researched a couple of them, chose one, and moved some money. A month or two later I moved the rest of our portfolio over and have never looked back. I love the fact they're not trying to beat the market, just keep pace with it. And I love the fact that they're picking investments the way I would - best value for the least money in fees, delivering the best performance in the class. And autobalancing continuously to maintain the target model portfolio distribution. 

Now as we get into our 50s I'm starting to think about retirement, and what that will look like in terms of managing our investments. In particular I'm concerned about wrestling with a whole new problem: managing withdrawals from the portfolio in the most tax-effective, economically advantageous fashion possible. 

And just like investing, I find myself intimidated by the sheer complexity that we'll need to navigate in order to get it right. Some of our questions include:

  • When should we start collecting social security? Should I wait until my wife, who is several years younger, is old enough to start before I do?
  • When should we take withdrawals from our IRAs and Roths? How much?
  • We both have some small pensions from companies we've worked for. Should we take a lump sum distribution from them?
  • Should we buy life insurance? How much? What type?
  • What kind of medical expenses should we expect, and how will we pay for them?
  • What happens if, down the road 20-30 years after we retire, one of us needs long term or skilled nursing care? 
  • Etc. etc etc.

Some of these questions are probably best answered by a financial advisor or financial planner, who we'd hire and pay to help us come up with some strategies to deal with some of the above questions.

But I can't help but feel that some of the other questions we have could be easily handled by a well-designed algorithm that takes account of the different tax code issues and social security payment levels, etc. and comes up with a recommended draw-down plan. 

So: where's my retirement roboadvisor?  

What is a provocation or insight that might inspire others during this challenge?

Can you envision an algorithmic approach that would lend itself to addressing the above challenge? Which parts of the above scenario would probably not be addressable via an algorithm?
And what are retirees going to do about health care (separate and difficult problem)?

Tell us about your work experience:

Business consultant with a focus on work process improvement for large companies.

Specifically, please check all that apply:

  • I'm not currently involved in a credit union, but am curious to learn more!

7 comments

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Photo of Kate Rushton

Hi Tom! The ideas phase of the financial longevity challenge is open for another two weeks. I hope to see your ideas there. This is the link to where you can post your ideas - https://challenges.openideo.com/challenge/financial-longevity/ideas Take care, Kate

Photo of Tom Short

Check out United Income by Kate Rushton.

The description of what this yet-to-be-launched fintech company is offering matches exactly what I was imagining. Thanks, Kate, for sharing this!!

Photo of Kate Rushton

Hi Tom!

Thank you for your post. This is extremely insightful and useful. When you were looking at roboadvisors for your investments were there any that stood out as particularly intuitive and easy-to-use? I think this would be quite useful if someone in the ideas phase wants to develop a roboadvisor for withdrawals. 

Photo of Tom Short

Thanks, Kate, for the feedback. The features that appealed to me when I chose my roboadvisor for investing (which I still use) included: 
1. trustworthy - not associated with a large investment firm that has its own portfolio of products they're going to try to push me into, so they're acting only in my interest. 
2. They have algorithm consistent with how I'd do it - best value for lowest fees and best returns, all while continuously monitoring and rebalancing to maintain a model portfolio.
3. Simple controls to establish my model portfolio
- what's my risk tolerance? 
- how old are my wife and I?
- at what age do we expect to retire?
4. Takes into account all our investable assets
- IRA, ROTH IRA, 401k (x2! We each have these)
- After-tax stock portfolio (jointly held)
- cash accounts at the bank
- pensions from current and previous employers (I have one, wife has two). 
5. Low annual fees - we got in early while fintech and roboadvising was still newish, and individual investors were still not sure what to make of them (maybe the majority still are). As a result we ended up with a flat monthly fee, regardless of asset size and complexity. That has changed significantly since then. Now they all charge a percentage of your investable assets under management. 

Photo of Rabbia

Great post! Really helped me gain insight on the research I did about Robo-Advisors.

Photo of Anne-Laure Fayard

Thanks Tom for sharing your own journey. There is indeed a lot of complexity and so many pieces of the puzzles! I'm wondering if it is only about algorithms. It could also be simplifying the visualization of the information to help you understand and make decisions, as well as probably simplifying the process. 
It seems to me that scenario-based design could also be a useful solution. You are also making an interesting point about trust as well as high-touch vs. high-tech. All great points to keep in mind! Thanks for sharing!

Photo of OpenIDEO

Hi Tom, thanks for the post! Any chance you could find an image to go along with it? Images help grab attention and tell a story. You should be able to use the Edit Contribution button on the top of your post and follow the instructions to add images from there. Looking forward to seeing more of your inspiring insights on OpenIDEO.