Social Security Solutions, creator of the SS Analyzer tool for financial advisers, unveiled its new Income Solver software program today that aims to help financial advisers manage retirement income withdrawals in the most tax-efficient way, resulting in more spendable income for clients.
“For years, conventional wisdom has led advisers to distribute clients' income first from taxable accounts, then from tax-deferred accounts and finally from tax-exempt accounts,” said Bill Meyer, founder and managing principal of Social Security Solutions and Retiree Inc. “Our research has proven incontrovertibly that the status quo is sub-optimal."
That research, conducted by William Reichenstein, a professor at Baylor University and head of research for Retiree Inc. and Social Security Solutions, shows that a tax-efficient withdrawal strategy, coupled with optimization of the client's Social Security income, can enable the client to keep more after-tax money in retirement.
Mr. Meyer and Mr. Reichenstein have been working on incorporating their retirement income research into their software program for the past 10 years.
“Income Solver marries the best practices of wealth management, tax logic, asset location and Social Security optimization,” said Mr. Meyer. “It enables advisers to provide quantifiable evidence to their clients of the added value of their advice — what some in the industry have dubbed 'adviser alpha'."
Using a case study of a 62-year-old couple with $1 million in tax-deferred retirement accounts and $500,000 in taxable savings who want to retire now, Income Solver compares two strategies side-by-side. The couple expects to spend $107,800 each year after taxes and 25% less after the death of the first spouse.
In the first strategy, the couple collects their Social Security benefits early and taps their 401(k) funds first, followed by the taxable accounts. Their savings are exhausted in about 39 years. In the second scenario, the spouses each wait until age 66 to collect their full Social Security benefits and withdraw from each account in a tax-efficient manner. The portfolio lasts an additional seven years.
Mr. Meyer gave me a one-on-one demonstration of the program. Account-specific data can be exported from any of the major financial planning software programs such as MoneyGuidePro, eMoney and Naviplan and uploaded to Income Solver.
The program enables advisers to manage withdrawals from various types of accounts while targeting a specific tax rate that can facilitate a gradual conversion of traditional retirement assets to a Roth IRA. It can also identify appropriate assets to sell or which accounts to tap to pay the tax on the conversion.
Advisers can also use the program to set specific Modified Adjust Gross Income levels for total withdrawals to avoid triggering higher Medicare premiums or provisional income thresholds that would subject a larger percentage of Social Security benefits to income taxes.
The program allows advisers to compare and analyze various withdrawal strategies and provides options to display results including graphs, pie charts and spreadsheets that can be customized for client-facing reports. Bottom line: The program can dramatically demonstrate how paying less in taxes results in more money to spend in retirement.
Prices for the Income Solver program range from $1,200 per year for a basic program to $1,900 per year for the premier version, which includes claiming strategy analysis and case support. Current SS Analyzer subscribers can add Income Solver for $900 per year. Monthly subscriptions are also available.
Other Social Security software programs, such as Social Security Timing and Social Security Pro, have also enhanced their offerings with tax transparency features and cash flow capabilities. In my opinion, none of them are as comprehensive as the new Income Solver program. Social Security Timing's software costs $49.99 per month, or $500 per year. Social Security Pro, which is included in Impact Technology's Cash Flow Decisions tool, costs $54.95 per month, or $549 per year.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews
and a certified financial planner.
