Author: iralogixdev

401(k) Providers Gave Minimal or No Guidance on Decumulation Strategies as Retirement Approached, Almost Half of Respondents Say

Retirees’ Biggest Challenge Managing Withdrawals: Understanding Range of Decumulation Options Available

A new survey sheds light on the challenges retirees encounter in managing withdrawals from their retirement savings—a process known as decumulation. Findings indicate that a significant number of retirees navigate this phase without a structured plan, choosing to withdraw funds as needs arise rather than following a consistent decumulation strategy. In contrast, only about one-quarter of respondents reported using a systematic approach, drawing down their savings based on a fixed annual percentage.

The survey was commissioned by the retirement industry’s leading fintech pioneer, IRALOGIX, and was conducted in late October 2024.

“This approach runs counter to a process that emphasizes sustainable withdrawal rates, spreading savings out over the long term to extend them throughout retirement,” said Peter J. de Silva, CEO of IRALOGIX. It points to a more instinctive, in-the-moment decision-making style, which could have significant long-term financial consequences. Optimally, retirees should have a more balanced approach, one that allows for some leeway but also safeguards long-term financial security by placing limitations around monthly savings withdrawals.”

Key Findings:

• 49% of retirees forego a formal withdrawal strategy, opting to take what they need as they go. 22% draw down their savings using a systematic process based on a fixed annual percentage; 17% spend only dividends and interest.

• 53% adjust their withdrawal strategies based only on changes in their personal lives or don’t make any adjustments at all.

• 46% say their 401(k) provider offered minimal or no resources on decumulation strategies as they approached retirement.

• 44% say inflation has minimal to no impact on their savings withdrawals. 31% note that inflation has some impact, but they haven’t made any major adjustments. 24% say inflation has a significant impact on their withdrawal strategies and they make adjustments based on it. 

• 32% say the biggest challenge in managing their retirement withdrawals is understanding all of the options available; 20% cite planning for healthcare or other unexpected costs; 20% say deciding how much to withdraw annually; 17% note managing taxes on their withdrawals. 

• 29% don’t have a strategy for adjusting their spending based on market performance, saying they don’t pay attention to how the market is doing. 24% stick to a fixed withdrawal rate regardless of market performance; 23% only adjust their spending under extreme market conditions; 23% adjust their withdrawals based on market performance.

Other Takeaways

• 53% of respondents tap Social Security before any other sources of savings or income. Other primary sources include pensions,19%, and 401(k) accounts and savings at 8% each.

• 39% say healthcare costs don’t play a significant role in their withdrawal strategies, while 37% note it is a significant or minimal factor.

• 32% say taxes play some role, but are not a major focus, in their savings withdrawal strategies. 28% cite taxes as having a significant role, and 18% haven’t considered taxes in their withdrawal plans.

• 31% maintain a 6-12-month cash reserve cushion to meet unexpected expenses; 29% keep more than 12 months; 25% don’t maintain a cushion.

• 30% don’t plan to change their spending patterns as they age and will keep their spending consistent throughout, 23% will increase their spending as healthcare needs arise, and 18% will increase their spending earlier in retirement, then decrease it later.

• 28% withdraw less than 3% annually to support their lifestyle.13% withdraw 4-5%, and 11% tap 5-6%.

“The findings show that while flexibility is valuable, there’s a clear need for guidance to help retirees navigte the complexities of decumulation,” said de Silva. “For many, the challenge isn’t just about deciding how much to withdraw, but also understanding the impact of taxes, healthcare costs, inflation, and unanticipated expenses on retirement savings. By making informed choices, retirees can feel more secure in managing both the expected and unexpected in retirement.”

Methodology

The survey was conducted online in October 2024 on behalf of IRALOGIX. Respondents, who skewed 52% female to 48% male, were drawn from a national sample of retirees with household incomes of $0 – $200,000-plus. To schedule an interview, or for a copy of the full survey results, please contact Scott Sunshine.

IRALOGIX, a leading retirement industry fintech provider, today announced the appointment of Tom Albergo as Chief Operations Officer. Albergo will assume his new position on December 2, report to Peter de Silva, Chief Executive Officer, and be a member of the Company’s Executive Leadership Team. Albergo succeeds Christine Skatchke, who is retiring at the end of December.

“We are excited to welcome Tom to the IRALOGIX team and are eager to leverage his experience, service orientation, and operational acumen to drive our continued growth,” said Peter de Silva. “With his extensive background in retirement operations, Tom is the perfect fit to help us achieve our growth, client experience, and operational goals. I am confident that his insights and contributions will be pivotal in accelerating our progress and strengthening IRALOGIX’s position as a leader in the retirement marketplace.”

“I am thrilled to join IRALOGIX as COO, especially at such a transformative time in the company’s journey. I look forward to shaping our operational strategy to deliver outstanding service to our customers and helping to shape and drive our business strategy through efficiency, innovation, and investments in our people.”

Most recently, Albergo served as Senior Vice President of Retirement Operations for Ascensus. He was responsible for growing business operations, driving process improvements, and enhancing line quality and service. He oversaw two retirement operating centers, two offshore service centers, and a $25 million P&L. Before Ascensus, Albergo held senior operations roles at ING.

 

IRALOGIX provides the tools and insights needed to streamline your IRA program costs and create a fee structure that enables your institution to remain competitive and responsive to client needs.

The fee structure for a financial institution’s IRA program plays a significant role in meeting both revenue and client retention goals. Balancing these sometimes competing interests is critical for a successful IRA program. The challenge lies in designing IRA fee structures that are transparent, ethical, and aligned with the institution’s goals and clients’ needs. Let’s explore how financial institutions can structure IRA fees to drive profitability while keeping clients engaged and loyal.

Understand IRA Fee Structures

IRA program sponsors, such as financial institutions, brokerages, trust companies and insurance companies, all charge different fees for their IRA offerings. The fees charged depend on the types of investments offered and the sponsor’s role in servicing the IRA program and account holders. Here are the types of fees typically charged for an IRA:

• Custodial fees for safekeeping assets, tax reporting and providing a trading platform
  • Administrative fees for recordkeeping, and account maintenance, reconciliation and statements
  • Management fees for overseeing the IRA program and/or selecting and monitoring the investments offered
  • Trading fees for each investment buy or sell order
  • Transaction fees for account holder transactions such as withdrawals or conversions
  • Paper fees for printing and mailing paper statements or other documents when clients elect a paper delivery option
• Investment advice fees for managed accounts or advisory services

Financial institutions typically apply these fees using one or more of these fee models:

• Asset-based fees offer scalable solutions reflecting the slide of a client’s portfolio
  • Tiered pricing based on account balance thresholds or service levels offer flexibility for various client segments
  • Flat fees do not change based on account balance or services provided, offering simplicity and predictability and appealing to clients seeking pricing structures that are easy to understand

Most IRA owners will not see all these fees itemized on their account statements. Some fees may not apply to an IRA program and most institutions bundle certain types of fees on the financial disclosure. This can make it difficult for account holders to determine how much they are paying for certain services or to compare IRA programs if the fees are not clearly explained.

Ethical Considerations

The IRA fee structure is crucial for maintaining credibility within the financial services market. While higher fees can increase revenue and profitability, they can also erode client trust if they’re hidden or mischaracterized. Financial institutions must ensure that their IRA fees reflect the value delivered and do not create potential conflicts of interest. Transparent fee practices can distinguish a firm from its competitors, fostering a reputation for integrity and reliability. Key considerations for ethical IRA fee structuring include

• • Clear explanations of fees and services, and how they will be applied,
  • Pricing that is reasonable and commensurate with the services provided, and
  • Regular reviews of fee practices considering market conditions, business goals, and client feedback.

Strategies for Maintaining Profitability in a Competitive Market

Put simply, profitability depends on effectively structuring fees to cover more than just the actual costs of operating the IRA program. The costs can include paying for recordkeeping technology and software, print and mailing services, compliance and legal services, and staff compensation and training. These internal costs can easily increase to the point where an IRA program is no longer profitable or can only be offered to account holders with balances large enough to warrant higher fees.

Upgrading technology is one way to reduce some of these costs in the long term, but that typically requires a large up-front investment. New technology alone is not the answer. A competitive IRA program still requires the right features, pricing and staffing to align with client needs and market dynamics.

Another strategy for maintaining a competitive IRA program is offering value-added features that don’t significantly increase internal costs. At a minimum, account holders want a secure, user-friendly online experience for managing their IRAs. But many account holders (and advisors) are now also seeking low-cost investments, rather than retail pricing, for rollover IRAs as a result of regulatory initiatives. It’s the additional features, such as personalized investment or draw-down advice, that enhance the perception of value. Many financial institutions, large and small, don’t have the internal bandwidth or funding to build, maintain and update all the facets required for a competitive IRA program.

As a result, an effective strategy is to partner with a provider that enables the financial institution to enhance its IRA program without increasing internal costs or compromising on services or fee transparency.

Achieve the Right Balance with IRALOGIX

IRALOGIX offers a cloud-native, white-labeled IRA recordkeeping platform that integrates seamlessly with a financial institution’s brand and website. Our online, paperless service includes compliance expertise, a friendly, knowledgeable customer care center, custody, trading, and personalized IRA features. We strive to keep our recordkeeping fees low, and we offer institutional share class investments with no trading fees, aligning with our mission to make retirement saving and investing accessible to everyone, regardless of account balance. We charge a base fee for recordkeeping and compliance services and enable financial institutions to set their own fees using tiered pricing and asset-based fee models.

By embracing innovative outsourced solutions, like IRALOGIX, financial institutions can enhance the value of their IRA programs and retain their clients, without increasing in-house costs and still maintain fee integrity. If you’re interested in optimizing your IRA program and elevating client satisfaction, reach out to us. Together, we can transform these opportunities into lasting growth.

IRAs have long served as essential tools to help reach retirement goals. However, as savers’ needs become more diverse and complex, legacy IRA programs could fall short. By leveraging advanced technology, IRALOGIX helps financial institutions deliver IRA programs that not only help meet the evolving demands of modern savers but also change the future of retirement saving.

The Future of IRAs

Today’s retirement planning industry is more dynamic than ever, with investors seeking solutions that offer convenience, flexibility, transparency, and personalized support. This evolution is leading to the development of innovative IRA features that transform IRAs from basic savings vehicles into customized retirement planning tools.

Technology-driven platforms are at the forefront of this transformation. For example, SaaS-based solutions enable financial institutions to work with platform providers to offer an innovative IRA program without having to modify existing systems architecture. IRALOGIX is revolutionizing the retirement industry with its proprietary cloud-native recordkeeping platform that offers complete IRA administration and the unique, flexible features that are maximizing the role of IRAs in a retirement saver’s financial journey.

Here are some of the features that make IRALOGIX a collaborator for taking your IRA program into the future.

Competitive Investments for Everyone

IRALOGIX provides financial institutions complete control over the investment line-up in their IRA program using institutional shares with no minimums. This flexible structure helps to ensure that all savers, regardless of the size of their account balance, can access competitive investment options compared to the typical retail alternatives​.

With no minimum balance requirements, financial institutions can say “yes” to any size IRA, meeting a huge gap in the industry for many savers. Financial institutions can also support retirement plan sponsors by providing an automatic rollover IRA program with the financial organization’s choice of a default investment. When individuals claim their IRAs, they can reallocate to the IRA program’s competitive options that are carefully screened by the financial institution and continue saving for retirement.

Customized Interfaces to Promote Your Brand

A fully customizable, white-label platform allows each financial institution to promote its brand while offering an innovative IRA program, providing a competitive edge in the marketplace​. Accountholders can access the IRA platform from their financial institution’s website with seamless integration.

Flexible Advice Solutions

IRALOGIX works with Morningstar Investment Management, LLC and Envestnet to offer digital advice engines that allow financial institutions to help ensure that investors across all risk profiles, ages and net worth can receive tailored savings guidance in a managed account.

Through IRALOGIX’s relationship with Morningstar Retirement, financial institutions can also offer a managed account engine, Morningstar® Retirement Manager℠, to provide even more automated support. This feature helps put savers on the path to meeting their retirement goals with holistic, dynamic and easily accessible digital advice. Using the information an individual provides, this service can

• • Recommend a personalized investment portfolio,
  • Monitor and adjust allocations as needed,
  • Estimate the amount of savings an individual will need in retirement,
  • Provide regular progress reports, and
  • Recommend changes to contributions, retirement age, and Social Security strategies to help the individual reach their goals.

These integrated features help make it easier for financial institutions to offer comprehensive advice services to anyone, helping individuals reach their retirement goals and helping to enhance portfolio performance.

Automated Features

IRALOGIX automates other critical aspects of retirement saving and income planning:

• • Savers can set up recurring contributions, helping to ensure growth of their retirement savings and dollar-cost averaging.
  • IRALOGIX simplifies and automates the Required Minimum Distribution (RMD) process, helping ensure compliance and reducing administrative burdens.
  • Retirees can receive a personalized withdrawal strategy and automate monthly payments to help ensure a steady income stream throughout their retirement​.

IRALOGIX’s cloud-native technology provides these features and more, with paperless enrollment and transactions on mobile-friendly portals.

Grow Your IRA Footprint with IRALOGIX

The future of IRAs is more than promising, driven by innovative features that allow financial institutions to help meet the diverse needs of savers and retirees. IRALOGIX is leading this change with an IRA platform that leverages advanced technology to ensure that flexible and personalized features are available for any size account balance.

Financial institutions looking to enhance their IRA programs, while offloading administration and compliance burdens, can collaborate with IRALOGIX to make this happen. Contact us to learn how we can support you in meeting the evolving demands of retirement savers.

©2024 Morningstar Investment Management LLC. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. Morningstar Retirement offers research- and technology-driven products and services to individuals, workplace retirement plans, and other industry players. Associated advisory services are provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc.

Morningstar® Retirement Manager℠ is intended for citizens or legal residents of the United States. Investment advice generated by Morningstar Retirement Manager is based on information provided and limited to the investment options available in the defined contribution plan. Projections and other information regarding the likelihood of various retirement income and/or investment outcomes are hypothetical in nature, do not reflect actual results, and are not guarantees of future results. Results may vary with each use and over time.

All investments involve risk, including the loss of principal. There can be no assurance that any financial strategy will be successful. There is no guarantee that the results of their advice, recommendations or objectives of a strategy will be achieved.

The financial services industry is fiercely competitive, which means customer retention isn’t just desirable—it’s essential. With IRALOGIX’s cloud-native solutions, institutions can offer strategic IRA features that transform simple transactions into long-term relationships, allowing clients to engage with a trusted partner as they navigate their financial journeys.

Transform Customer Loyalty

Well-crafted IRA solutions enable financial institutions to deepen customer loyalty by recognizing and addressing the unique needs of each client. By leveraging technology and tailored features, strategic IRA offerings elevate customer satisfaction levels and foster deeper connections.

Step 1. Decipher Customer Needs and Preferences

Financial institutions face growing pressure to offer new features and conveniences to remain competitive. While Traditional, Roth, and SIMPLE IRAs remain fundamental retirement saving tools, the demand for enhanced account features has evolved as modern technology revolutionizes the IRA industry.

• Consumers expect to access their financial accounts on mobile-friendly portals, with real-time updates and seamless transactions.
• Job changers and retirees are looking for rollover IRAs features that compare to employer-sponsored plans, including model portfolios, managed accounts, and institutional share class investments.
• Younger investors may be seeking higher risk investments with the potential for higher returns and value personalized recommendations on savings rates.
• Baby Boomers often prioritize low-risk, income-generating options and draw-down strategies.
• Competitive fee structures make products more attractive, while flexible contribution methods and systematic withdrawals add convenience.

Customizing IRA solutions to address diverse client needs is mission-critical. Conducting surveys and focus groups can reveal these nuanced preferences, providing invaluable insights for tailoring your offerings.

Step 2. Implement New IRA Features

Offering a multi-featured IRA program requires a large investment for financial institutions. However, industry partnerships can provide cost-effective solutions, allowing financial institutions to offer desired features without the heavy investment in building and maintaining proprietary technology or managing compliance and regulatory updates internally. By partnering with specialized providers, financial institutions can streamline administrative processes, reduce operational burdens, and deliver a more comprehensive and efficient IRA experience. This approach frees institutions to focus on their core strengths while leveraging external expertise for the back-end complexities of IRA administration.

Step 3. Boost Awareness of Strategic IRA Solutions

Promotion is crucial to the success of any strategic offering. Using multiple channels like webinars, newsletters, educational initiatives, and social media can significantly increase the visibility of your solutions. For example, a well-executed social media campaign that highlights the benefits of your innovative IRA features can reach thousands, if not millions, of potential customers. A webinar can provide valuable industry insights to advisors and explain how your IRA features can benefit their clients.

Staff training is another vital component of your marketing efforts. Well-informed employees who can effectively communicate the advantages of various IRA products or features foster a deeper sense of trust and loyalty with your customers. They can answer questions and personalize the benefit of each feature to the customer, enhancing customer satisfaction—and take-up rate of new features.

The Value of Strategic IRA Offerings

Adding strategic IRA offerings can be a pivotal growth strategy for financial institutions. When customers understand the benefits of consolidating their retirement assets in an IRA that offers the features they’re looking for, you can deepen relationships with existing clients, acquire new clients, increase assets, and differentiate your brand in a crowded market.

Leveraging specialized providers and technology solutions to implement new features can reduce internal labor and development costs to administer IRAs and build or maintain systems. In addition, the right partnership will provide streamlined processes, compliance support, account holder support, and an advanced platform to simplify the customer experience and optimize outcomes.

Institutions that fail to innovate risk losing customers to competitors and missing key opportunities, like rollovers.

Embrace Innovation for Lasting Loyalty

In today’s competitive IRA market, financial institutions must stay ahead of evolving customer needs. With increasing demand for personalized services and ever-changing compliance requirements, now is the time to evaluate your IRA program.

IRALOGIX can help you enhance your IRA program and customer retention. With our cloud-native platform, compliance expertise, and strategic IRA features, we make it easy for institutions to offer cutting-edge technology solutions, streamline administrative processes, and stay ahead of consumer expectations in the rapidly changing IRA market.

Enhance your customer retention strategy with strategic IRA solutions designed to meet today’s challenges. Contact IRALOGIX  to explore how we can help streamline your offerings and drive long-term loyalty.