That's where the money is, and the need. "Many Americans' retirement expectations are like a piece of Swiss cheese--full of holes," according to the Employee Benefit Research Institute's 16th Annual Retirement Confidence Survey released in April. A quick scan of survey responses reveals perfect confusion. For instance, only 40% indicated that either they or their spouses participated in a defined benefit plan, yet 61% expected to receive benefits from such a plan when they retired.

While 59% of respondents indicated that they would prefer a similar or better lifestyle upon retirement, 50% believed they could achieve such a lifestyle on 70% or less of their pre-retirement income. Overall, 24% of workers were "very confident" about their retirement prospects, but of that number, 22% were not currently saving for retirement, 39% had less than $50,000 in savings and 37% had not done a retirement-needs calculation.

Until recently, financial advisers lacked adequate tools to help the general public get the straight story on retirement distribution planning. But a number of software providers have recently developed enhancements for existing programs that are targeted squarely at this burgeoning market.

NAVIPLAN STANDARD: MORE SCENARIOS

EISI, distributors of the popular NaviPlan software, have significantly enhanced the retirement distribution planning capabilities of NaviPlan Standard this year. While version 10.0 laid the groundwork for many of these upgrades, the new version, 10.1, is delivering on the program's promise. The "Scenarios" pages of the new version are more robust and include five new tabs that let advisers zero in on a single aspect of the distribution process and illustrate the impact of that aspect on the overall plan.

One tab, for instance, now offers advisers control over the order of asset liquidation. One of three preprogrammed orders (nonqualified, Roth, qualified; nonqualified, qualified, Roth; Roth, qualified, nonqualified) can be selected with a single mouse click. Advisers can also fully customize the liquidation order if they choose. This makes it easier to compare a base plan with an alternative order.

Another tab lets advisers map out all manner of Social Security scenarios. If a couple's base plan calls for the husband and wife to retire at age 65 and begin receiving Social Security benefits, the adviser could, with a few mouse clicks on the Social Security tab, summon up alternative scenarios that would be available for each spouse. For example, each spouse could receive benefits as soon as he or she is qualified, at the normal retirement age or when maximum benefits are achieved (typically age 70).

In the "Financial Pictures" portion of the program, another tab allows users to override the annuitization settings for existing annuities. It also allows advisers to illustrate the impact of annuitizing some (or all) non-annuitized retirement assets. This section includes an easy-to-use "fill the gap" calculator. Assuming that there are sufficient assets, and the adviser wants to generate sufficient fixed income from annuities to match fixed expenses, this calculator will estimate the gap. The adviser can then generate an "annuitize to need" scenario based on the size of the gap and the estimated amount needed to fill it. Other tabs let you alter objectives and add new income sources and expenses quickly and efficiently.

NaviPlan Standard 10.1 is a significant upgrade. From a planning perspective, it helps advisers do a much better job of engaging clients in discussions about alternatives and the effect one choice or factor could have on their overall plan. On the practice management side, this upgrade will make advisers much more efficient.

MONEYGUIDEPRO: GOALS WIZARD

Until recently, PIE Technologies, the developers of MoneyGuidePro, had not made much of an effort to upgrade its software to address distribution planning. But according to the firm's CEO, Bob Curtis, "the financial planning software industry seems to believe that retirement distribution planning is a new thing. We've always believed that distribution planning is a fundamental part of our process...perhaps we just haven't done a good job of communicating that fact."

Curtis says there are three misconceptions financial advisers and their clients have about distribution planning. First, many believe that distribution planning should focus on income, but he argues that the focus should be on goals, just as it is before retirement. "The purpose of distribution planning is to focus on clients' goals, and how they can achieve those goals," Curtis says.

Second, many people believe that distribution planning doesn't start until retirement. "Once a client retires, there are only a limited number of factors (expenses and portfolio construction, for example) that the client and adviser can control. Planning needs to start no later than age 50, when it can still have an impact on a wide range of factors."

The third misconception is the need for an income portfolio. "Clients don't need an income portfolio, they need cash flow to fund their goals," says Curtis. He believes that this philosophy has been incorporated into MoneyGuidePro. Its scenario planning or "What Ifs" have long been a core part of the program, as has the ability to address specific retirement goals.

The current version, 7.1, released in June, enhances advisers' ability to model different Social Security scenarios. For example, in the past, the program's inflation assumption and cost-of-living adjustment were linked; now advisers can create separate assumptions for each. So, if you believe inflation will be 4%, but the government will only inflate Social Security payments at 3%, you can now model that scenario. And in previous versions, advisers had to select one age at which Social Security payments would begin, and that number would be locked in throughout the plan. Version 7.1 allows users to run multiple scenarios with a variety of Social Security assumptions. This is significant because for many retirees, these payments may be the only inflation-adjusted cash flow they receive for the rest of their lives.

The next MoneyGuidePro update, due in the fourth quarter of 2006, will contain several retirement distribution features. One is a "Goals Wizard," which walks advisers through the process of entering client goals into the system. Previously, advisers just programmed goals directly.

The wizard will serve multiple purposes. First, it will help less experienced advisers or those new to the program to quickly and efficiently set goals within the system. Second, it will provide advisers with the logic behind the MoneyGuidePro goal-creation process. Third, it will allow advisers to offer clients and prospects access to the Goals Wizard online so they can begin thinking about the goal-setting process before meeting. This can accelerate and enrich the planning process.

PROFILES+: A WORK IN PROGRESS

Financial Profiles has yet to address retirement distribution planning in a meaningful way, but that's because the firm intends to address it comprehensively. At Financial Profiles' annual meeting in May, President and CEO Jim McClafferty turned up the heat on his developers when he promised a new, improved version of Profiles+ by Thanksgiving. Whether the company can deliver remains to be seen, but sources in the firm indicate that they're pulling out all the stops.

"The problem we are grappling with is what specific controls to provide with regard to the disposition of assets," explains Greg Janes, Financial Profiles' director of business analysis. "On the one hand, we want to automate as much as we can; on the other hand, we want to provide some flexibility. The problem is, the more specific control the adviser has, the less automatic the software can be. We are trying to achieve the right balance."

Janes says that while the next version of Profiles+ is still a work in progress, it will provide numerous asset disposition options, including sales (primarily for illiquid assets such as collectibles); hold/live off the income (for certificates of deposit and dividend-paying equities, for example); annuitize (with multiple options); systematic withdrawals; convert an asset (traditional IRA to a Roth IRA, for example); and downsize a residence and liquidate as needed (with various preprogrammed liquidation orders).

In addition, the next release is scheduled to include rebalancing and reallocation capabilities. Advisers will be able to tell the software to rebalance portfolios to a target allocation at regular intervals. Reallocation will keep the asset allocation aligned with one model for a period of time (perhaps until retirement) and then align it with a different asset allocation for the remainder of the scenario.

MORNINGSTAR: EDUCATING PROSPECTS

Morningstar has developed two new products for the retirement distribution planning marketplace. The first, Retirement Income Education Center (RIEC), is currently available through the adviser and institutional sales channels. REIC is the best tool I've seen yet for educating the public about retirement distribution planning.

RIEC lets advisers illustrate distribution planning concepts in a context that's meaningful. It individually addresses the major risks to a distribution plan (such as savings, longevity, inflation and market volatility) in a modular format. For each concept, the adviser can customize the examples (age, asset allocation, etc.) to mirror the prospect's own particular circumstances. The adviser can then either generate a PowerPoint presentation (including speaker notes) or an investor concept brochure in pdf format for electronic delivery or printing. The reports feature charts, graphs and co-branding.

Morningstar's second new offering is Retirement Income Strategist (RIS), a standalone product. It doesn't incorporate distribution planning into a comprehensive planning package. It "is a targeted retirement distribution tool that makes planning profitable," says David McClellan, vice president of adviser business development at Morningstar. The program, currently available to institutions--and scheduled for release to planners in the fourth quarter of 2006--allows advisers to create a "base case" designed to illustrate the client's future if no planning is done. Typically, the result will be a funding gap. From there, the adviser can easily create alternative scenarios for the client.

The program's approach is similar to that of NaviPlan Standard: Once the base scenario is completed, the adviser can generate preprogrammed alternatives such as "retire later," "work part-time for x number of years" or "reduce variable expenses." According to McClellan, RIS is just the first of Morningstar's efforts in this area. Expect future versions to include preprogrammed scenarios for Social Security and pension optimizations, a downsized home scenario and more.

If the surveys regarding boomers' lack of retirement preparedness are correct, these new retirement distribution tools are sorely needed. The clock is ticking, and many pre-retirees desperately need the help.

Joel Bruckenstein is a technology consultant and publisher of Virtual Office News, a practice management and technology newsletter. He can be reached at joel.bruckenstein@gmail.com.

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