The 5 Best Robo Advisors for Retirees
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 feels 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.
How Robo Advisors Manage a Retiree's Portfolio
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.Betterment for example, is one way to manage your money with far less work. There's a simple signup process, low fees and it has a completely hands-off option for portfolio growth. I have two finance degrees and 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 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 regularly scheduled withdrawals. We reviewed the top robo-advising platforms to see how they stack up for retirement needs.
Best For: Portfolio Variety.
Betterment is often seen as a pioneer in the robo-advising space. And it is one of the most helpful for retirees due to its range of portfolio options. All you have to do is outline your investing goals and level of risk tolerance, and Betterment invests in various portfolios of ETFs and bonds to match those goals. It has some of the greatest portfolio variety out of all robo advisors, and it supports IRA accounts as well.
We also like Betterment for retirees because it starts at just 0.25% in annual management fees for portfolios under $100,000. You pay 0.40% for portfolios above this amount, but you also get free access to human financial advisors, which is a massive selling point. Plus, it leverages tools like tax-loss harvesting to help you maximize returns.
Betterment Review | Get Started With Betterment
Best For: Broker & Robo Advisor Hybrid.
M1 Finance is a combination of an online broker and a robo advisor. This is because it lets you invest in stocks and ETFs on your own or use prebuilt M1 portfolios if you need a helping hand. These prebuilt portfolios are known as “Pies” and are developed using modern portfolio theory like many other robo advisors. But we like M1 because you can customize these Pies to suit your needs and goals, which might be different in retirement than other life stages.
You don't pay trading fees or automated investing fees either, which is hard to find for robo advisors. To make money, M1 offers a Plus version that lets you earn cash-back rewards, get better borrowing rates, and adds a PM trading window. But for relatively hands-off investing, the basic and free version works just fine.
M1 Review | Get Started With M1 Finance
Best For: Human Advice.
Just note that you need to invest at least $100,000 to use Empower's wealth management service. Fees start at 0.89% annually for portfolios under $1 million, which is higher than most robo advisors. But Empower also has a wealth of free tools like a retirement planner, budgeting tools, and useful investment fee analyzer.
Empower Review | Get Started With Empower
Best For: Portfolio Customization.
Wealthfront is another excellent robo advisor for retirees due to its low fees and customization options. Like Betterment, Wealthfront only charges 0.25% in annual management fees. And we like this robo advisor since it lets you customize your portfolios so you can play around with the asset allocation. Overall, it's a great starting point for investors with less experience, and more savvy investors can tweak portfolios to meet their needs.
If you want human advice, options like Betterment or Empower are superior. But Wealthfront is another low-cost way to invest in autopilot during retirement.
Wealthfront Review | Get Started With Wealthfront
Vanguard Digital Advisor
Best For: Low Fees.
One final robo advisor for retirees that you can use is Vanguard Digital Advisor. This automated investing service invests in a range of low-cost Vanguard ETFs to suit your goals and risk tolerance. Vanguard is already one of the leaders in ETF investing, so it only makes sense that it offers a robo advisor.
There's a $3,000 minimum requirement to open an account. You don't pay advisory fees for your first 90 days. Afterwards, it costs up to 0.20% in annual advisory fees, which is less expensive than many competitors. We also like Vanguard since you can explore its other services like its Personal Advisor Service that lets you work directly with a Vanguard advisor to create a custom financial plan.
Vanguard Digital Advisors Review | Get Started With Vanguard
Fees & Expenses
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.
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 maybe even more useful than before you are ready to retire, particularly with 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're not sure about robo advisors but don't want to pay lots of fees to a financial advisor, then check out Farther. This digital fiduciary can help you invest for a clear, set fee. You get access to a financial advisor, as well a personalized investing strategy.
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 (here's the list of the best robo advisors out there). 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.
What are the pros and cons of shifting an IRA to Betterment from a fee-based wealth manager in the current bear market? Is it better to wait or can it be done now? I just retired last year and should not need my money for about another 10 years. I am not funding long term care insurance.
Can overseas residents use Robo Advisers. I am an Australian citizen can I use the service?
Most cannot. Acorns is one of the robo-advisors that works in Australia.
I’ve been early retired for going on three years and I have my portfolio split up between Personal Capital, Vanguard Personal Advisor Services and Betterment. PC has the highest fees but also has a unique non-index fund approach. Vanguard and Betterment use index funds but while Vanguard provides a human advisor Betterment involves no human interaction at all. They’ve all done quite well.
Thanks for chiming in Steve. Great to hear your personal experiences with all three of these.