Automating decumulation to meet the needs of a booming retiree population

July 19, 2023, Danvers, MA: With millions of baby boomers retiring, awareness is growing that
meeting individual clients’ retirement income needs at scale will require greater use of automation in the retirement planning and decumulation phases of retirement.

A new HealthView Services white paper, “Automating Retirement Planning and Decumulation to Address Rising Healthcare (and Other) Expenses,” details a new approach for financial services firms and advisors to manage portfolios that help ensure clients will have the funds they need to address retirement expenses. With an initial focus on healthcare, the methodology can also be applied to a range of specific retirement expenses or a client’s overall retirement needs.

“Decumulation is arguably the most complex phase of retirement, with multiple factors including rising healthcare expenses, health-related events, portfolio performance and withdrawals all impacting the ability of a portfolio to meet future needs,” said Ron Mastrogiovanni, founder and CEO of HealthView Services. “Integrating automation into portfolio management, in ways that can take into account these variables, provides a path for firms and advisors to efficiently meet clients’ decumulation needs at scale, consistent with regulatory best interest requirements.”

A leader in retirement planning data and tools, with expertise from the development of one of the industry’s first turnkey asset management programs (TAMP), HealthView Services’ new approach leverages retirement healthcare cost projection data to help retirees plan and save for future expenses and manage portfolios to address retirement healthcare needs.

“We draw on 530 million healthcare cases, government, economic and actuarial data to provide lifetime and annual retirement healthcare cost projections for individual clients based on income, health condition, state of residence, and expected longevity,” added Mastrogiovanni. “The system uses this data to encourage savings and automate the process of generating income to match annual expenses through retirement.”

Pre-retirement, HealthViews’ approach enables advisors to run individual healthcare cost projections in the company’s new Health Planner Plus software to drive savings to address future expenses. In retirement, the application provides the ability to automate allocations to cash based on a client’s projected annual healthcare expenses and rebalance a portfolio following a decumulation glidepath to optimize the balance of risk and returns.

The tools dynamically update the funding status of a clients’ portfolio based on changes to Medicare premiums, a client’s health condition, projected longevity, and risk appetite, as well as investment performance. Advisors are informed of additional savings that may be required to address expenses through retirement or if the portfolio is overfunded.

Underscoring the importance of planning for healthcare costs, and generating income to address
healthcare needs, an average 55-year-old healthy couple retiring at age 65 and living to actuarial
longevity can expect $712,000 (future value) in lifetime premiums and out-of-pocket (OOP) costs.

Driven by healthcare inflation, age ratings, and increased utilization of services, at the beginning of retirement their annual expenses will be $14,700, and in the last year of retirement $54,500.

“For many clients, a 4% rule or a CPI-based approach to decumulation will fall short, because they do not account for the additional income that will be required over time for healthcare in retirement,” noted Mastrogiovanni. “By starting with projected expenses and building automation into the management of portfolios to ensure they are addressed, advisors can far more effectively, and time-efficiently, manage portfolios on an individual basis. Clients benefit from knowing critical expenses will be covered.”

HealthView Services’ approach can be used to generate the data needed to manage or benchmark the performance of dedicated healthcare-focused portfolios or existing retirement portfolios against healthcare needs. Financial services firms and advisors also have the option to use HealthView Services-developed healthcare portfolios into which the Health Planner Plus portfolio management software has been integrated. The white paper details the simple question-based process advisors and clients go through to determine projected costs and manage portfolios to address healthcare expenses.