IncomePath: Helping clients reimagine retirement spending

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By Susan Rupe

Two retirement industry thought leaders believe the industry’s “failure” approach to retirement planning is faulty, so they conducted their own research and created a tool to help consumers make the best choice for a successful retirement.

Dr. Michael Finke and Tamiko Toland launched IncomePath, planning software that its creators said is aimed at simplifying retirement income planning.

Finke is IncomePath’s Chief Strategist and is also a professor and Frank M. Engle Chair of Economic Security at The American College of Financial Services. He leads the Granum Center for Financial Security. Tamiko Toland is IncomePath’s CEO and is a thought leader known as the “annuity Yoda.” Toland advises clients on retirement income through her consulting firm and has held leadership positions at TIAA, Strategic Insight and Cannex Financial Exchanges.

Goal-based process used

IncomePath uses a goal-based process that considers spending flexibility and other factors to help users visualize how risk affects possible lifestyle paths. By clarifying how investment volatility and an unknown lifespan impact spending, IncomePath allows a client to select the right combination of investment risk, portfolio withdrawals, and annuity income. IncomePath includes a step-by-step retirement income planning guide and visual aid that allows a client to choose their lifestyle path.

“The IncomePath concept, as we’ve envisioned it, is all about that moment when an individual decides how they want to design their retirement income,” Finke told InsuranceNewsNet. “It’s about a broad question of you choosing how much risk you want to take with your investments and then how much guaranteed income you incorporate as part of your retirement.”

Finke said IncomePath allows a client to select the right combination of investment risk, portfolio withdrawals and annuity income. IncomePath includes a step-by-step retirement income planning guide and visual aid that allows a client to choose their lifestyle path and consider options that may impact their retirement spending.

“The traditional 4% Rule way of thinking about retirement income planning, where you sit down with the advisor and they run a Monte Carlo analysis and say you can spend $40,000 a year from a $1 million portfolio with an 85% chance of success – that doesn’t give anyone any sort of idea of what it means to take an investment risk or whether it makes sense to incorporate some kind of guaranteed income,” he said. “People don’t know how to make basic decisions when it comes to retirement income planning. And I think it creates a negative framing about retirement planning.”

Finke said he believes most consumers “are anxious about this anyway, they don't really understand the way that investments work, they don't have any clue how much they can pull out of their investments every year to fund an income.”

'Complex elements' simplified

IncomePath, he said, “takes all of those very complex elements of the retirement income planning decision, and distills them into something that is a combination of an easy process, to imagine what it means to take investment risk, what it means to accept the possibility that our income can go up or down over time.”

One of the things that makes IncomePath unique, he said, is “we acknowledge from the very outset that if you don't know how long you're going to live, if you don't know what kind of investment returns you're going to get, you have to be willing to move your spending up or down over time, depending on what the market gives you. And this creates a methodology for deciding how much you can move up or down every year. And then it allows you to imagine what the path of income could potentially look like.”

IncomePath’s visualizations help an individual see how “good” or “bad luck,” and the use of financial products that transfer risk could shape their retirement. At its core, IncomePath illustrates the differences between retirement income choices.

The IncomePath methodology is an adaptive withdrawal strategy that recalculates the withdrawal every year based on the account value and the expected lifespan of the individual. In addition, it allows a withdrawal adjustment that permits spending flexibility up to a stated percentage of the previous year’s withdrawal.

Toland said she and Finke “don’t really see IncomePath as a replacement for any existing tool or service.”

“There is lots of room for advisors to do their advisor work and to use other planning tools out there for things such as tax strategies or asset allocation. But we’re focused on the decision on how much to take out in retirement. So that is the income path. It’s not one narrow lane. It’s a range of results. And it’s for clients to understand the scope of variability so they can really make a decision about their spending.”

The question that retirees seek to answer is ultimately less about income than it is about lifestyle, Finke and Toland said. Retirees may be willing to accept the possibility of reducing spending later in retirement if investment returns are less than expected so that they can spend more in their 60s and 70s. Just as importantly, retirees should be given the freedom to spend more if investments perform well, which allows them to upgrade their lifestyle or give to others as a living legacy.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.