Elected officials may alter Social Security, and even if they don't, it likely won't be nearly enough for future retirees. Add to that the increasing number of corporations that are dumping their pension plans, and it's clear that retirement planning is becoming more self-directed by the year.
Experts say the group approaching retirement, the Baby Boomers, isn't nearly as prepared as it should be, and that creates an emerging opportunity for online brokerages that can deftly offer the right mix of innovative Web-based retirement planning products and educational offerings. "People are going to be a lot more responsible for their income in the future when they retire than they were in past generations, and that reality is really hitting consumers," says Yvette Butler, vp of investor marketing for E*Trade. "And there's no one size fits all solution for this market."
Since the market collapse of 2000, E*Trade has evolved into a broad-based financial services provider - and expanding its Web-based retirement planning services is part of that effort. The online brokerage is positioning itself to take advantage of a combination of factors, such as the growth of the Internet as a mainstream channel for financial transactions, the increasing lifespan of retirees and the belief that many people who are of retirement age aren't prepared for retirement in an age where Social Security isn't a major factor.
The firm recently launched an IRA product for people who are 59.5 years of age and over, allowing consumers to integrate cash and broker accounts-giving them fast access to retirement funds, which can be cash, debit cards or checks. "This was born out of an increased focus on income planning," Butler says.
There's an increasing worry among Baby Boomers that having a set amount of money when they retire won't be enough: They'll live long enough for the money to dry up. For example, the National Council on Aging estimates that about 20 percent of the American workforce will be over the age of 55 by 2015, as opposed to 13 percent in 2000. That's creating a greater focus among soon-to-retire consumers in having a greater flow of income through a mix of investments beyond IRAs and traditional pension plans.
"There's been a wide array of studies that are showing the Baby Boomer generation has not been adequately prepared for retirement," says Tracy Cormier, a senior analyst for EMonitor, a Corporate Insight Product. "They don't have a sense of what their need is going to be and what their shortfall might be."
Butler says E*Trade is attempting to assuage these concerns through a number of online "what if" tools and products that allow quick transfers and access to 401(k) and retirement funds. Investors are surveyed for risk tolerance and time horizon, and the site makes an asset-allocation recommendation based on the results. "We can make specific mutual fund recommendations, and it you agree with the recommendations, you can buy the product with one click," Butler says.
Another tool, called Risk Analyzer, allows users to determine how much risk is in an investor's existing portfolio. The user can then add and remove securities and get a sense of what the overall impact on risk would be for the resulting portfolio.
Advisory services are also part of E*Trade's retirement offerings, with three levels based on the amount of interaction a client desires - with available accounts viewed on a dashboard. A first level is for self-directed investors interested in making their own decisions. A second level is aimed at investors wanting occasional advice from investment professionals, which offers an a la carte service that allows them to speak to professionals at branches or on the phone. The final level is for investors who want full portfolio management.
One of E*Trade's largest rivals, TD Ameritrade, wouldn't provide an executive to comment on its online retirement planning by press time. A spokesperson for another major rival, Charles Schwab, says the discount brokerage's online retirement tools include a retirement planner, which calculates an investor's personal retirement goal, and the Schwab IRA Analyzer, which offers information on IRA alternatives.
Cormier says Corporate Insight's research on online retirement planning, while not directly naming specific firms, found a dearth of robust solutions across the online brokerage industry - with most offering general information and a generic rate of return on potential products, rather than a more detailed view based on a client's specific holdings. That suggests an open marketplace for brokers to improve their offerings. "The brokerages can benefit by promising suggestions that can give their clients a new way to meet their goals if they are coming up with an income shortfall in their projections," Cormier says.
