The share of the aging population has been increasing all over the world since the 1950s, making the average life expectancy for men and women in the United States 76 and 83 years old accordingly, and 80 and 85 years for European residents. Consequently, the retirement age has also increased, stating 67 for US citizens and varying from 62 to 67 in Europe and Asia. Some countries offer better social security plans, others push the retirement process and the retirement benefits to the private spheres of citizens’ lives. It means that after retirement a statistically average person expects to live for 25-30 more years and it feels good if you are confident that the generated funds will be enough. That’s why the necessity of retirement apps, assisting in the correct budget planning, and saving for the future is so crucial nowadays. The retirement management software is mainly addressed at individuals or financial consultancies, but quite recently the insurance sphere is getting more and more interested in providing retirement plans to their clients.
US and European Retirement Reality
If we speak about the US reality, there are several ways how people can prepare themselves for retirement. The first one is the Social Security payment, which varies from $848 to $3890 per month. The majority of people, especially those who worked on low-paid jobs or were not able to be officially employed for a decent amount of years, don’t rely on Social Security payments alone and started to plan for retirement long ahead. An average amount of money for a comfortable retirement in the US is considered to be $40K. Some part of this sum is covered by the Social Security benefits, the other half is entirely on people’s ability to save and get ready for retirement. There are two main forms of running your retirement account: through 401(k) plans, organized by employers, or using IRA plans and their modifications. But neither of the ways might be sufficient. In the case of a job shift your previous 401(k) plans stay unprotected if not canceled. Although, modern tribulations, specifically COVID-19 and many other plausible misfortunes could make you run your IRA accumulated savings much earlier, leading to you being completely unprotected by the time you have to retire.
The situation in Europe and the UK is similar but not exactly the same. The pension in Europe is paid based on the insurance people used to have while working. For a retired couple in England, for example, £25K per year is considered a comfortable sum of money, taking into consideration that £14K out of this sum is paid by the government. In other European countries, the pension rates, as well as living costs, are smaller. To sum up, unlike the US experience, retirement in Europe is more socially protected but still, in case of retirees wanting to have bigger financial opportunities, retirement management solutions could be very handy.
What is Retirement Management Software?
The main goal of any retirement planning tool is to help people estimate their income, give an idea of retirement needs and the current spending models. There are several parameters to be taken into consideration when people use retirement analysis software:
- individual’s future lifespan,
- expected rate of inflation,
- gross income,
- dual income in case of having two working spouses,
- different banking account types,
- required minimum distributions,
- changing social security rules,
- reallocating assets,
- expenses planned: college education, purchasing a house, new car, etc.
Everyone’s experience varies, that’s why financial planning software could only suggest a plan, although, with the development of technologies nowadays (ML, AI, Data Science. etc), the accuracy of prediction is getting very precise, especially if the software is custom developed.
Why Retirement Management Software Is Vital for Insurance Industry
To reach out to clients and become a trustworthy partner for life, insurance companies should seriously consider embracing retirement planning options into the insurance package offered to companies and individuals. The right insurance software could protect the clients’ income in retirement, keep the savings on track, and improve the investments. Moreover, due to preferential tax treatment, life insurance options provide tax-deferred growth and tax-free cash flow.
What Aspects Insurance Companies Should Pay Attention To?
1. Interdependent Retirement Risks
Insurance companies should be selective in which retirement planning software they recommend. The top priority should be given to solutions with multiple retirement risks examined, especially the ones that are interdependent. Such programs are good because they frame the analysis in terms of insurable events.
2. Consultancy from Financial Advisors
The retirement app should provide abundant information about inflation rates, market performance, health care costs, etc. Ideally, any insurance company should engage financial advisors or at least offer one-two free consultations to recommend the right plan taking into consideration specific client’s needs. Also, it’s preferable to cooperate with financial advisors specializing in different aspects of retirement: annuities, investment plans, analysis, simulations, Monte Carlo predictions, etc.
3. Pre-retirement and Post-retirement Planning Tools
While building custom retirement analysis software insurance companies should give ear to the difference between pre-retirement and post-retirement planning tools. Pre-retirement generally is based on developing a saving strategy and using the appropriate asset allocation and investments over a known period. Post-retirement practices have to address a complex set of risks over an unknown period.
Core of the Best Retirement Finance Planning App
To order profound and resilient retirement planning software which would automatically lead to better client service, and in the long run bringing better revenues for the companies introducing it, the following aspects should be taken into consideration.
- Spending Analysis Tools
The integration of spending analysis tools stems from the fact that expenses are not predetermined, unlike income. They should be modified within certain limits, the solution could advise on cutting back on travel or entertainment costs. etc. To ensure the success of the retirement planning, spending behavior could be visualized based on your actual expenses and presented interactively to seed new spending habits in quite a short time.
- Robotic Advisory Tools
Based on the personal data provided the robotic retirement planning calculators come up with the exact time your funds might run out. Moreover, the implementation of sophisticated algorithms and machine learning free the way to various scenarios and provide clients with sound advice on better funds management. The most widespread are ‘What-If’ scenarios, Monte Carlo simulations, or a linear model either goals-based or cash-flow-based. It’s important to provide 401(k), IRA limits, and periodic tax law updates to let the program stay up to date and extremely helpful.
- Multiple Financial Goals Support
This feature is important not to overestimate the sum of money that could be saved for a comfortable retirement, thus providing clients with an incomplete picture. There should be other goals you would like to save for other than retirement: college, new car purchase, relocation to a new home, etc.
- Security and Protection
The majority of retirement software run nowadays is web-based, but with the growth of smartphones, it could be run as apps. Due to phones being exposed to phishing and hacking, any financial solutions should be protected. This could be two-factor authentication, encryption, or other secure protocols.
- Intuitive Design
There is no doubt that clients’ loyalty and retention are based on how user-friendly the design of the app is. This feature is extremely important with retirement calculators because the software by its nature is quite complicated. Built-in guidance and structure of retirement apps are more beneficial for clients than the introduction of complicated schemes and deep financial planning algorithms that need a professional to interpret.
There are plenty of retirement management solutions to cater to various needs of end-users helping them to get ready for a comfortable retirement. There is an opportunity to use free and paid apps for individuals or get a full package from an insurance or financial company. But the question of its accuracy is still in the air. The best way for insurance companies and financial consulting agencies is to order custom development, and make sure that all the aspects and key features described in this article are applied. Make your retirement planning software highly interactive, user-friendly, safe to put in sensitive data, helpful to compare multiple scenarios, illustrate stress tests, and make up the saving plan. It should be also easy to update and bring changes to the existing retirement plan.
Itexus has a good record of successfully developed financial apps, integrating machine learning, AI, Data Science, and other top-notch technologies. If you have an idea about what type of financial software you would like to build, or in case of an already existing app that needs the upgrade, get in touch with us.
We’ve compiled an infographic to make it easier for you to remember all the important parts from the article, in a visual form.