Robo advisors are among the hottest developments of the financial technology (fintec) era. With their advanced investing and trading algorithms, they can help you grow your retirement and investment nest eggs. But they’re just for technology-addicted Millennials, right?
True, some of these platforms are all decked out to make anyone over the age of 35 feel like an old fuddy duddy. Take SoFi, for example. It’s clearly geared toward a generation that has grown up with iPhones in their pockets. Millennials tend to not want any bells and whistles, and they’re looking for super-cheap solutions.
But the rest of us would like some extra service. And if you’re in or near retirement, your investing needs are going to be very different than someone who is just starting out with saving.
Not to worry — there are plenty of robo-investing platforms that are appropriate — and even friendly — for retirees. We’re here to get you started.
What Are Robo Advisors?
If you are unfamiliar with robo advisors, begin here.
Robo advisors are a hybrid stock broker and investment advisor in one. Rather than taking your investments to a brokerage where you are on your own to manage your portfolio, a robo advisor handles all of your investment decisions for you, based on a short signup survey.
You might think that a fully managed portfolio would cost you an arm and a leg in fees, but robo advisors break the mold of traditional investment advising. Robo-advising firms typically charge far less than traditional advisors, as there is very little overhead compared to the old model of doing business.
Traditional investment advising companies have offices dotted around the country, with staff working at each location, and pay for that infrastructure with fees on your portfolio. Robo advisors are online only and, thanks to minimal infrastructure and staff needs, can charge you much, much less for your investment fees.
In exchange for that low cost, your portfolio is managed by a computer, not a person. But people build the rules and algorithms that dictate your investments. This gives you a sweet spot of low fees and high-quality portfolio management.
How Robo Advisors Manage a Retiree’s Portfolio
I first signed up for a robo advisor way back in October 2011. I picked Betterment as a new method of managing my money with far less work. I was impressed with the simple signup process, low fees and completely hands-off options for portfolio growth. I have two finance degrees and an extensive education in investing and portfolio management. But you don’t need an MBA to manage your money with a robo advisor. Anyone with a basic knowledge of their money and the internet can take advantage of robo advising to improve their portfolio.
For younger investors, robo advising is completely focused on building your portfolio while managing your downside risk. As you near retirement, the advisors slowly shift your funds from a stock-heavy portfolio to a lower risk, bond-heavy one. In retirement, a portfolio should be low risk and focused on providing a regular cash flow to support basic living expenses like housing, dining, medical bills and travel.
Robo advisors do the heavy lifting automatically. You don’t need any background in investments or portfolio theory to succeed. Instead, you just tell the robo advisor your age, how long you expect to live and how much cash you’ll need per month (or year), and it takes care of the rest.
Keep in mind that robo advisors are quite powerful, but they can’t do magic and fix a portfolio that is well below the target savings for someone your age looking to maintain a specific lifestyle. And for the most part, robo advisors are geared toward people in the accumulation phase, rather than withdrawal (with the exception of Betterment). But if you have been generally doing the right things to save, the robo advisor can take it from there.
What Are the Best Robo Advisors for Retirees?
Retirees want more than just managing investments. They also want a robo advisor that allows for regular scheduled withdrawals. We reviewed the top robo-advising platforms to see how they stack up for retirement needs.
Betterment is the best robo advisor platform for beginning investors, with no minimum deposit and low fees... in-depth retirement tools and effective asset allocation... plus, it's possible to receive assistance from human advisors.
- Simple Asset Allocation
- Low Management Fees
- Perfect for Young Investors
- Tax-Coordinated Portfolio
- RetireGuide Calculator
- Flexible Portfolios
- Analyze Accounts Beyond Betterment
- Not for DIYers
- Cannot Asset-Allocate With External Accounts
- No REITs or Commodities
Betterment is often seen as a pioneer in the robo-advising space. And it is one of the most helpful for retirees. Betterment offers retirees a process to similar to other robo advisors for helping users set up their portfolio and define their needs. Just tell Betterment how long you need your savings to last and how much you plan to draw from savings. Betterment’s systems will then put together a recommended portfolio and withdrawal plan. It even gives you an option to auto-withdraw income from Betterment to your checking account on a regular schedule, just like a paycheck.
Personal Capital is an excellent personal finance app that syncs your spending, saving and investing accounts. It's easy to use, plus it's free! Personal Capital has a powerful feature that completes a thorough checkup of your investment portfolio. However, its Wealth Management service, is more expensive than other robo advisors.
- Complete View of Your Finances
- Powerful Investment Checkup
- Support via Many Apps
- The You Index
- Easy to Use
- Custom Allocation of Unknown Assets
- Great Reporting
- All-Inclusive Wealth Management Fee
- Asset Allocation Is Not Customizable
- Budgeting Tool Needs Improvement
- Cannot Reconcile
- Expensive Wealth Management Service
- High Minimum for Wealth Management
- No Import Option From Quicken
- Sales Calls from Personal Capital
Personal Capital isn’t solely a robo-advising firm. It uses a hybrid of computer technology and a human advisor to best manage your investments for your personal needs. There are no pages on the Personal Capital website specific to those in retirement, so it can be inferred that you work with your human advisor to create your own withdrawal schedule. Most tools, like this retirement planner, are optimized for those still saving for retirement today.
With low fees (free for accounts with less than $10,000) and a stellar selection of features, Wealthfront is one of the best players on the robo investing scene. However, some sophisticated investors might find its features lacking.
- Free for Accounts Under $5,000
- Tax-Loss Harvesting for All Accounts
- Stock Level Tax-Loss Harvesting
- Risk Parity
- 529 Plan Option
- Two-Factor Authentication
- Path Considers External Accounts
- No Fractional Shares
Wealthfront allows you to set up your account to take required minimum distributions starting at age 70½ or schedule regular withdrawals of any amount. Once you hit 59½ years of age, Wealthfront allows you to make any normal or qualified distribution from a retirement account. You can withdraw a minimum of $250 as long as you maintain a minimum $500 account balance. Wealthfront allows you to make withdrawals at any time, but it looks like it does not support recurring withdrawals on a regular schedule.
Is a Robo Advisor Right for Your Retirement?
Robo-advisors make a compelling case for retirement savings and investments, and they don’t fall short during retirement. In fact, using a robo advisor in retirement may be even more useful than before you are ready to retire, particularly with the simple investment management and automatic withdrawals.
Based on our review, Betterment is the best robo advisor for retired individuals looking for a low-cost investment management service that will pay them on a regular schedule, just like payday.
If you are comfortable with a computer controlling your investments, there is no reason to skip out on letting a robo advisor manage your retirement. Then you can get back to the important things like fixing your golf game or planning your next trip to see the grandkids. Whatever you want to do, you won’t have to waste time managing your investments.