Hacking retirement: Technology to spur saving

Retirement saving should be straightforward: Save early and often. But human behavior seems to get in the way. For whatever reason, many fail to start early enough or they don’t save enough. The result: the average 401(k) balance is just under $100,000 and three in 10 workers report themselves to be stressed about retirement.

“As humans, we’re not built to think long term,” said Owen Davies, who leads Accenture’s pension industry practice. “We can’t see how a little action now can have huge consequences in 20 or 30 years.”

A number of technology solutions aim to help. Though many of them are targeted toward do-it-yourselfers, CPA financial planners are also using these technologies with their clients to nudge savings rates higher and change behavior.

We spoke with several financial and technology experts to gain insights into which technologies are doing the job today and which ones to look out for in the future.

Retirement starts with saving

Automating savings has been shown to help people save more. Apps like Acorns and Qapital round up users’ purchases and move the money into investment or savings accounts. Acorns has recently launched an IRA; Qapital lets users set up their own saving rules, like transferring $20 to a savings account every time they shop for groceries or fill up their tank. (As always, users should weigh potential data privacy concerns before using any app.)

Chris Benson, CPA/PFS, principal with LK Benson in Towson, Md., for example, believes these are an effective way to introduce desirable saving behavior to the children of his firm’s clients. “They don’t have any savings, so we’ll sit down and show them how these apps work,” Benson said. “They might not be ready for our services yet, but at least they are starting to put money away.”

In a few years’ time, when they are ready for Benson’s service, they aren’t starting from scratch, he said.

Insights into spending

Other services such as Mint.com give users views into their financial habits with the hope that the information might lead to better spending decisions. Mint.com aggregates all of users’ accounts to show them where their money is going. It also shows users the difference in their cash flow by choosing different actions, such as switching from a high-interest credit card to one with better rates.

“With the centralization of all the data, you can be better informed about the decisions you will make or not make,” said Larry Miles, principal of AdvicePeriod, a Los Angeles-based financial advisory firm. CPA financial planners can use these tracking tools with their clients to see any changes to a regular savings program.

Benson’s firm, for example, has started using account aggregation software that pulls clients’ financial data from multiple sources. “If we see they’ve stopped saving money, we’ll know that something has happened, so we can have a conversation with them about it,” he said.

Technology for better investing

Robo-advisers are another way technology innovations are helping retirement savers. CPA financial planners who choose to manage assets can use them to automate clients’ investments, freeing up more time for one-on-one interactions and focus on their goals and concerns. Several platforms offer more robust service for advisers with institutional pricing and additional features.

Because the asset allocation decision is so crucial — and so difficult to get right — digital advice platforms help in the design of entire portfolios based on a client’s age, risk tolerance, and goals. These apps also try to reduce people’s inclination toward market timing, which, in turn, helps to improve investor behavior.

For example, when investors get skittish about the market and want to sell out of equities, Betterment shows them a screen detailing their tax liability before they execute the trade. Others display an investor’s returns since inception as the default performance screen. Though subtle, these tweaks give investors cues to rethink their impulse to sell.

“We have an almost innate human sense that we should do something, when really the thing we should do is nothing,” Miles said. “The best technology can help you do that.”

Integrating health care data

For many clients, the biggest retirement concern is the cost of health care. CPA financial planners likely realize that they need to incorporate this big, yet unpredictable, expense into retirement projections. A retiring 65-year old couple can expect to spend $404,253 on health care during retirement, according to HealthView Service.

That’s a tough nut to crack, but Bank of America is taking a stab at it. According to news reports, the bank recently received a patent for a wearable technology to sync a user’s health data, such as heart rate, level of activity, medical conditions, and prescription drugs they are taking with his or her finances. There’s no product yet that uses the technology, but the idea is to eventually make customized saving and investing recommendation based on each person’s individualized health status.

As intriguing as the idea is, the technology might have its limitations.

“You can’t predict longevity actuarially on an individual basis,” said Diane Oakley, executive director of the National Institute on Retirement Security. “The actuaries could do that when they have a group of people, but not for each person individually.”

What’s more, there are privacy concerns about how such personal information would be used.

“What happens if it turns out that there’s something bad about your health and you need health insurance or life insurance,” said Oakley. “Is someone going to use that against you?”

A retirement concierge

Though the technology doesn’t exist yet, Davies envisions a not-too-distant future where artificial intelligence will walk retirement savers through the process, providing guidance at every step.

“You’ll be able to say, ‘Alexa, retire me in 2050,’ and Alexa will say, ‘OK, let’s go,'” said Davies.

Home voice assistants already have a treasure-trove of users’ daily habits and can be integrated with banking and investment accounts.

Such a bevy of information can help CPA financial planners guide their clients too. Clients who sign on to this type of assistance can also allow their CPAs to access the data, Davies said.

There are many new technologies hoping to hack retirement, but CPAs have the big-picture insight, in-depth tax knowledge, and human relationships to put all of the planning pieces together in a way that an app could never do. The key is for CPA financial planners to use their professional acumen effectively to provide the guidance their clients are looking for not only on their taxes and retirement, but on all areas of their personal finances.  

Ilana Polyak is a Massachusetts-based freelance writer. To comment on this article or to suggest an idea for another article, contact Chris Baysden, associate director-content development, at Chris.Baysden@aicpa-cima.com.