The Boulevard to Financial Independence

Boulevard R has made a pretty significant adjustment in how we approach financial planning. Up until about a month ago, we were focused on retirement planning. But over the course of talking with users, experts, friends and strangers, we came to the realization that what consumers are more focused on are their immediate financial goals.

At FinovateStartup we launched our new approach: creating personalized financial plans prepared by independent Certified Financial Planners™ to help non-wealthy consumers reach their financial goals. We figured that the rich had enough people fighting with each other to serve them, but that those with less than $500,000 in investable assets didn’t have a lot of options when it came to unbiased financial advice.

Since then, we’ve been getting some positive reviews about how we’re approaching financial planning. Not only from financial planners who are frustrated with an industry business model that relegates them to serving only wealthy clients, but analysts are also interested in what we’re up to.

Here’s what a senior analyst from Aite Group wrote in his assessment of how Boulevard R stacked up within the category of companies we presented with at FinovateStartup:

“Investment analysis/planning.
By my count, there were eight firms that fell into this category, including Boulevard R, Zecco, Cake Financial, Motley Fool CAPS, Invesra, Money Pools, Trade King, and Vestopia.

My take:
…I’ll tell you who I’ll be watching in this space: Boulevard R. While they offer an assessment approach not too unlike the Wells Fargo and ING approach I criticized here, what distinguishes Boulevard R’s approach from the big firms was the apparent level of detail in the plan that’s produced (I say apparent because they flipped through the screens too quickly, which was understandable given the time constraints)…“

We’ve also been getting a bit of press from InvestmentNews and TheStreet.com:

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20080512/REG/218681369/1046

http://www.thestreet.com/story/10418059/2/get-your-computer-to-build-your-financial-future.html

We’re now turning our focus to improving the online dashboard so that consumers can get expert advice on how to complete their Next Steps and reach their financial goals. If you have any thoughts on how we can make Boulevard R better for you, we’d love to hear from you. You can email us at support@boulevardr.com

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I just spent the last week getting in touch with what life feels like at the end of retirement. The flu set in and I spent my days just hoping for the next to be a little less painful.

And it made me think that I don’t want to be spending my retirement isolated in some apartment where no one in my building knows me. At the same time, a certain amount of independence, like still being able to live in an apartment, is a real luxury. I’m really not keen on spending my days in a nursing care facility.

Who knows what kind of situations we’ll find ourselves in at the end of life? It’s partly this uncertainty that makes it difficult to motivate to plan for retirement. I should plan to live to 90, but what happens if I only make it to 80, or just 70? I can always keep working if it looks like my health is going to carry well into old age, right?

A study by McKinsey points to the fact that of those presently retired, 40% were forced into retirement. The two main causes of these premature retirements: disability and layoffs. An early retirement can put a serious crimp in quality of life later on. Fortunately, there are still some social and community services for older people to ensure that they can get the most basic care.

Retirement planning is tricky because we all want to hope for the best and it’s an event that is sufficiently far enough away that we can tell ourselves that there will be plenty of time to deal with this later. It’s also complex and not clear to most on where you should start your planning. The more money saved now, though, could be mean tens or hundreds of thousands of dollars extra in retirement. And that could have a major impact on how you live your life in your later years. Worse case scenario if you over-save, you’ll have money to leave behind so that others may benefit from you hard work. That’s not so bad.

As the housing market does a nose dive in certain areas of the country and analysts suggest that we’re not yet through the worst of it as adjustable rate mortgages continue to reset, many people nearing retirement are getting a bit more anxious.  Somewhere around 50% of Americans are counting on their home as a significant part of their retirement nest egg.

I had coffee last week with someone and he started talking about Boulevard R’s calculations.  He assumed that we were counting the equity in his house as an asset that could be counted toward his retirement.  Lots of Americans are counting on the recent gains in the housing market to fund their retirement.  Unfortunately, your home is not something that you want to bank on.

First of all, you have to live somewhere, unless you plan on selling your home and spending the rest of your life living on a tropical beach in a tent (doesn’t sound half-bad, though it might be hard to fit all your furniture inside).  Second, you’re not going to get nearly as much money out of your house as might think.

Randy laid out the math nicely in an earlier blog post.

There are a lot of expenses when it comes to tapping the equity in your home.  Naturally, banks and other lenders are particularly good at getting more of your assets into their pockets.  Up until recently, I believe that the market capitalization of financial services companies included in the S&P 500 accounted for over 20% of its total value.  It’s quite rare for any sector to be so dominant and it’s a position that financials have held for multiple years.

So soon, Boulevard R is going to be implementing a new feature to allow users to count the equity in their home (though we don’t recommend it and urge consumers to beware of reverse mortgages, at least until they become a more reputable financial transaction without so many hidden fees or with such poor conditions).  The stark reality is that for many Americans, they’ve saved so little they’re going to need to tap into all the assets they can.

One more reason to do all you can to get on track now, even if that means delaying retirement a bit.  Just don’t get stuck in the trap that you can just work forever.  According to McKinsey, 40% of current retirees were forced to stop working earlier than they had planned, primarily through either layoffs or becoming disabled on the job.

There are a lot of downers when it comes to retirement.  There’s hope though- if you understand where you stand, become better informed and start to make incremental changes now, you’ll be able to navigate to a secure retirement.

In the months and months we’ve been working away, we’ve had the opportunity to check out a lot of different online tools aimed at helping consumers come up with a plan, or at least a calculation, for retirement.

Boulevard R is continually refining our calculations so that they’re increasingly accurate and customized. We’re using a cost of living index by zip codes now and are fine tuning the impact of buying a home (like any independent financial advisor worth their salt would tell you, you shouldn’t count on the equity in your home as part of your nest egg because you have to live somewhere)).

In the process of coming up with our own algorithm and testing lots of other tools to see how they approach retirement planning calculations, I think the different types of planning calcs can be roughly grouped into the following categories:

1. Hi, meet our sales rep
2. Hi, we’re here to help (meet our sales rep)
3. Hi, we’re here to help (and they really are)
4. Get out the your tax returns from the last 3 years
5. You like multimedia? Have I got a site for you!
6. You like meaningless calculations? Step right up!

Let’s start at the top and explore #1 a bit more. Fidelity’s myPlan tool is a classic example of this. It gives you a quick and easy calculation, coupled with voice over and sliders. The user interface is very friendly and engaging, but the problem is that it generally comes up with an unrealistic number, because so many of the big impact assumptions are hard wired into the tool itself (like the replacement rate for income). Since you realize that this point that saving $1.2 million is a daunting proposition, talking to a Fidelity rep might be an increasingly attractive proposition. Many of the tools made by financial services companies fall into this group, principally because they’re more aligned with their own interests than those of their customers.

#2 is a more subtle variation on the first approach. It tries to help, sometimes valiantly, but in the end the goal is to provide an array of options, one of which (guess which one) is more attractive than the others. Nationwide does a nice job with this on their Retireability Check. They have a lot of good information about how to choose a financial advisor. But guess what- Nationwide is not in the business of generating leads for non-associated financial advisors.

Financial Engines is a good example of #3. Tools built by a Nobel Prize winning economist. They really set out to create tools to help consumers make good investment decisions. The problem is that most people don’t what to use them. They’re not particularly engaging and you’re totally isolated from anyone else who uses the tool. No collective wisdom, no tips or advice, just modeling with a pretty bland interface. When it comes to picking good mutual funds, they make it pretty easy, though it’d be interested to see how the top mutual funds perform against index funds.

We got some nice press today from the good folks over at FiLife.com.

Kristen, who covers the retirement planning and investing beat, wrote up a thoughtful piece on what we’re up to. She did a great job of accurately depicting our approach to planning, as well as a laying out what’s coming down the pipe.

The angle she took by including the mental health aspect of what Boulevard R is about was an interesting emphasis. The reality is that a lot of Americans are pretty stressed out about retirement. Even if they’re doing a good job, they’re constantly hearing that it’s never good enough. Boulevard R tries to go beyond what existing retirement calculators offer, by customizing your calculation (using Bureau of Labor Statistics, Census and IRS data), so the amount you need to save on an ongoing basis is reflective of what your life situation is, as well as your expectations for retirement.

We can all do more to prepare, but how about just making sure that we have our basics covered and then go from there? In an age where the safety nets are fraying and we have to depend on ourselves (and our own judgment on saving and investing, while providing for those who depend on us), if Boulevard R can remove some of the stresses inherent in personal finance, while motivating people to do the best that they can to prepare for life after work, then we’ll have done something special.

I visited my local farmers market on Saturday and was amazed at how much great, farm-fresh produce they have in January (full disclosure: I am in California). It got me thinking about healthy lifestyles and their long-term impact on retirement planning.

At the end of last week, I was talking on the phone with someone who has been using the site (we love to hear what you think about Boulevard R and how we can make it better- you can call us at (888) 412-5837) and they mentioned that the impact health care costs were having on their retirement plan was much more significant than they had anticipated. Today, I met with one of the independent financial advisors on our team and heard something similar- health care costs can blindside consumers in retirement. There is actually a Medigap insurance coverage window once you retire, and if you miss it, later on insurance companies can legally refuse to provide you with insurance.

Something else to consider, if you’re thinking about retiring early (before you turn 65), you’ll need to get some health coverage (a lot of consumers think their company is going to cover their health care expenses in retirement, but companies are increasingly cutting back on these benefits, since it is such a large expense). A basic way to calculate how much this will cost is: $1,500/year for basic coverage and increase that number by 10% for each additional year. And that number is probably if you’ve been going to the farmer’s market a lot and exercising regularly.

So if you’re not already doing it, maybe it’s time indulge in some fresh produce or get on a regular exercise plan (didn’t we just do our new years resolutions?), since another important part of planning for retirement is considering your quality of life for when you don’t have to work any more. Poor health can not only contribute to poor quality of life, but it can also be very expensive. If you miss your Medigap insurance window or don’t insure properly, and you develop a chronic health condition, you could be on the hook for tens of thousands of dollars. Conversely, you may have saved enough, but are unable to travel or do the things you enjoy the most because of poor health. Any way you cut it, in the long term it will pay dividends to spend a little more time taking care of yourself now. As it was said to me while traveling on a train in India “Health is wealth.” Well said indeed.

Don’t look now, but if you’ve found this blog and haven’t yet been through Boulevard R’s 5-step process, the next logical step is for you to get on the retirement scale and weigh in. Not necessarily a fun proposition.

A lot of people don’t want to put themselves in the position of receiving potentially bad news. Life is hard enough already, so why risk ruining a perfectly good day by a self-inflicted reality check? Maybe, though, the news is good (or at least not as bad as you thought it might be). You may find out that you’re on track to have enough saved to get you to 85 and if you take action now, you’ll be able to afford a 3-week vacation to Europe every two years.

One of the issues we’ve wrestled with here at Boulevard R, is how to constructively return results that are both highly accurate and inspire you to continue (whether improvement means you’ll be able to retire at 59 instead of 65 or that you’ll be on track to have enough money to cover your basic needs in retirement until you’re 87). Retirement is such a delicate issue, since it’s both complex and emotionally charged (a big and sometimes feared unknown).

Another thing we’re trying to figure out is what makes people come to the site? Since we don’t have a lot in the way of PR driving traffic, what makes them click on the search link for Boulevard R? It might just come down to the fact that they’re curious. Curious people who want an answer and some help figuring out what Gallup cites as by far the biggest financial concern for Americans. We think curiosity is a good thing- and so does Seth Godin:

Have any insights about stepping on the scale and why you would or would not want to? Please let us know!

Most online calculators focus on a specific event, like retirement, buying a home or college savings.  Boulevard R, however, takes an integrated approach that considers all these factors and does it in a way that is designed to be used on an ongoing basis.  Our goal is to simulate the planning process someone would go through with an independent financial advisor by looking at the bigger financial picutre, since it’s rightly said that “Retirement is the one financial event that you can’t borrow for.”

Nearly all the online tools you’ve ever used have assumptions hard-wired into the calculation that do not allow for adjustments and forecast on a linear basis (assuming the same rate of return year in and year out).  Our approach is based on best practices and is effectively the process you would get if you sat down with an independent financial advisor, so we take into account your income, number of kids, cost of living and also run 1,000 Monte Carlo simulations based on historical market return (which also changes the results, because we run a new calculation with Monte Carlo simulations every time you adjust a variable).  In short, Boulevard R’s engine tries to more realistically simulate all the impacts on retirement calculations (and there are many) than any other tool available and that makes it more sensitive to smaller adjustments.

Boulevard R’s approach to planning for retirement is a lot like sailing from San Francisco to Maui.  You don’t set your course, kick back and then assume you’ll be in Maui in 2 weeks (this is the approach most online planners take).  You have to make course corrections along the way.  One of the the great aspects of the tool is that it models the impacts of different financial decisions or events, so that consumers can make more educated financial decisions.

Boulevard R makes a realistic forecast based on the many different factors, but if you tweak some of them- inflation, for example - you’re going to get a drastically different result, since that % is compounded over many years.

We’re continually working to customize our calculation and improve the user experience to help consumers reach a secure retirement.  Success for us is helping consumers who are not on track to get on track and for those who are on track, we want to help them retire even sooner.  As we talk with users we continue to learn.  We appreciate that there may be better ways to return results, particularly for those who might end up in the “red” and we’re working on ways to do this effectively so that we don’t mislead people and at the same time motivate them to look at some changes they can make to improve their situation.  While we also want to return results that inspire hope, we also have an obligation to be realistic.  If we were just calculating what people need to retire, and not considering their financial goals like buying a home or saving for college, their finances would look a lot better.  But the reality is that those goals have a very significant impact on retirement, since they represent a real opportunity cost.  That’s something that most retirement calculators won’t tell you.

Please keep the feedback coming- support@boulevardr.com

It is clear that banks have a lot of catch up work to do when it comes to the retirement market. A recent survey that comes from the banking industry points out:

“Only 14 percent of mass affluent consumers cited their bank as their
primary provider of retirement savings, compared to 53 percent for
investment and brokerage firms. Additionally, banks captured just 18
percent of 401(k) rollovers to an IRA compared with 67 percent for
investment and brokerage firms in the past year.”

However, it’s not like consumers aren’t planning for retirement. The study points out:

“…the mass affluent are clearly engaged in
retirement planning. A majority (59 percent) cite saving for retirement as
their top financial priority, followed by paying bills (cited by 34 percent
as a top priority). Nearly all (89 percent) report having done some form of
retirement planning.”

The study goes on to say that banks are now getting punished for being focused on transactions instead of advisory focused and that consumers do not consider them the go-to source for financial advice. Given that most bankers are not trained as advisors, who do banks then make the transition to a model that is more focused on customized solutions? For banks in wealthy areas, they can build out a wealth management team, but what about banks that don’t have enough customers with over $500k in investable assets?

At Boulevard R, we’re focused on delivering actionable, customized advice to consumers who don’t qualify for wealth management services. These are the people that no one has yet figured out how to reach . While investing is important for these folks, we’re more interested in helping them save for retirement and then make investment decisions that aligned with their risk profile and what they want to do in retirement. We feel a mix of a non-threatening interface, actionable advice and community generated tips on how to get on track for retirement will be a great start.

Thanks to Davis Janowski, we were recently featured in an Investment News article.  Investment News covers issues for financial advisors and it was great speaking with Davis who understood the need to provide services to the mass market and also liked the interactive nature of the interface.

The opportunity to address the larger market, not the millionaires, is what is really significant in Boulevard R’s model.  Retirement is such a concerning issue for so many people that  if we can provide them with effective, customized tools and the support they need, we’ll be successful.