How Online Tools Can Help You Manage Your Money in Retirement

Approximately 20% of the American population is retired, which amounts to close to 66 million people. Despite the large retiree market, however, there has been relatively limited venture capital investment in new tools and services to help with "decumulation."

Decumulation is the phase of life when retirees must manage drawing down their nest egg and try to avoid running out of money. 

Investors poured $17.8 billion into private U.S. fintech (financial tech) companies in 2020, up from $14.8 billion in 2019. Only a tiny fraction of that fintech investment surge is going into decumulation-related tech startups. 

There are several reasons why venture capitalists aren't investing in decumulation (which we will discuss later in this article) but despite the relative funding gap, we will first review the new services that are catered towards Americans in retirement. 

To oversimplify, innovation in this space can be broken into three categories; new services to help family members manage the finances of loved ones, tools to help with estate planning, and firms seeking to modernize annuities and pension products.

America's bulge of retiring baby boomers may need help from their family members as they manage their retirement nest egg, longevity risk, and potential mental decline. Firms like Carefull, EverSafe, and True Link Financial help loved ones monitor and/or manage a retiree's financial accounts and help protect against fraud, scams, and poor financial decisions. 

The exact products these three firms offer vary, but the general idea is to use technology to be proactively informed about a loved one's finances rather than finding out about problems after it is already too late. 

"Fintech tools protect family members by analyzing financial activity for anomalies across all linked accounts, credit cards, credit, and real estate records," according to Howard Tischler, EverSafe's co-founder and CEO. "This is how scammers operate and why their schemes can persist for months or even years without being detected. Alerts sent to a designated team of caregivers and/or fiduciaries also makes a critical difference in identifying issues before a lifetime of savings is lost."

Many people need help navigating the maze of federal and state level estate planning and inheritance rules. Despite the word "estate" conjuring up images of the former mansions of Gilded Age robber barons, all Americans need estate planning in retirement. Estate planning is necessary to reduce both your personal tax bill and the tax bill of your heirs. 

Fabric and Trust & Will are examples of two relatively new tech-ish firms that can help with the estate planning process. In addition, many of the large online legal support services like LegalShield, LegalZoom, and RocketLawyer offer elements of estate planning fully or partially online. Innovation in this space is not limited to the United States: Farewill, based in the U.K., is an example of a foreign tech company offering online estate planning to their local market. 

In many wealthy countries, workplace pensions are becoming relatively less common and/or less reliable. This shifts the burden of managing a retirement nest egg and longevity risks to the individual. Creating a simple, transparent, and easy-to-use digital pension or annuity product can help address the retirement crisis in America and around the world.

Unfortunately, there is relatively limited fintech activity in the pension and annuity space in the United States. Due is the only independent American direct-to-consumer annuity or pension tech startup that I'm aware of.

Perhaps unsurprisingly, there are more pension and annuity tech innovators abroad, where pensions are more common. Examples of tech companies trying to modernize pension and annuity products in foreign markets include Maji, Penfold and PensionBee in the U.K., Tountine Trust in Ireland, Vantik in Germany, and Grandhood in Denmark. 

Over the years, I have asked founders and venture capitalists why the number of tech startups and the overall investment in the decumulation phase of life is so low relative to the millions of Americans in retirement. In response, three reasons are cited for the relatively limited fintech activity in the decumulation. 

First, venture capitalists (VCs) seek companies with the potential for "hockey stick"-style rapid revenue growth. Since supporting users in retirement usually involves clients and accounts that will become less valuable over time, venture capitalists are often skeptical that any decumulation-related firm can achieve "hockey stick" hyper growth. 

Second, the "typical" startup playbook is focused on creating scalable, online-focused business models with minimal human customer service and support. VCs often assume businesses that must support older individuals will require an expensive customer support system and lots of manual follow-up from human representatives. Fairly or not, there is inherent skepticism of an online-focused business model catering towards retirees. 

Third, VCs are concerned that the retirement industry is a "sold, not bought" industry. The perception is most boomers are sold retirement products by their financial advisor, and that they are not shopping around, reading online reviews, and buying the best available retirement products. VCs worry that new online-focused decumulation services will not be able to get major traction, as financial advisors and brokers control relationships with the potential clients. 

Despite these perceptions, the massive size of the "in retirement" market calls for more innovative tech startups and venture capital backing. Venture capital investment into retiree health and wellness has already started to pick up. 

For example, in 2020, Techstars and Pivotal Ventures (a Melinda French Gates company) launched the Future of Longevity Accelerator to support early stage innovation for older adults and their caregivers. The program has already helped launch 20 tech startups. 

"Investor interest in this category is growing at an explosive pace, as evidenced recently in our culminating pitch event last week, Demo Day, which received two and a half times the viewership this year as compared to last year," said Keith Camhi, managing director of the Techstars Future of Longevity Accelerator. 

It is only a matter of time before tech sector interest and investment in decumulation and the management of financial assets in retirement catches up to America's demographic reality.