Income Lab with Justin Fitzpatrick | E232

A dynamic approach to decumulation planning.

On today's Fintech Impact episode, Jason Pereira will talk to Justin Fitzpatrick, Chief Innovation Officer of Income lab. It is an online platform that basically lets you do dynamic retirement planning, but essentially is an accumulation software that helps model out different scenarios that stress test and any number of interesting ways to model out what the decompilation scenarios look like for investors.

Episode Highlights

  • 00.52: Income lab is software that advisors use to create and monitor what we think is a realistic, but, more importantly, dynamic retirement income plan. 

  • 01.20: Until income lab came along, advisors didn't really have a robust, scalable way to build dynamic plans or to communicate them effectively because that could be somewhat complex or to automate the business processes that are involved in plan monitoring. 

  • 01.47: Justin says that they are laser-focused on retirement income planning. He explains that they typically live alongside one of the widely used generalized financial planning systems for when client relationships need to go deep on retirement, whether it's incoming withdrawal, sourcing, tax planning, spending decisions. 

  • 04.47: Justin says that the bigger thing is that the framing and all the analysis behind plans change from a success and failure view of retirement. 

  • 05.37: Justin talks about the risk of retirement, for example, between standard of living and the risk that you might have to trim that standard of living down at some point. He says that is what risk really is in retirement is the chances that you will have to tighten your belt. 

  • 07.00: A lot of people were a little dissatisfied with that framing of success and failure. We talked with a lot of advisors who were already talking with clients about adjustments. The problem was they couldn't actually show a client when an adjustment would be made or paint a longer-term picture of what a life might look like if you adjust in this way. So, we really homed in on helping advisors paint that picture, says Justin.

  • 08.12: Justin says that the plan they have built is a plan that has changed within it ,so when events happen that draw retirees' attention. Things like higher inflation or major market corrections and an advisor can say look, this is part of the plan. The plan includes parameters telling the advisors when it will be time to make a change and the great thing is if you have a dynamic plan, at least historically, it looks like relatively minor adjustments could have, saved any plan in the sense of stop people from running out of money. 

  • 09.38: Justin talked about the major contribution of Monte Carlo when it got applied to financial services.

  • 10.58: Justin says that there are a lot of things that are really important to get right. But you can then apply various models of the world to the situation to see how your advice might change. 

  • 13.10: Justin says that retirement is one of the nastiest, hardest problems to deal with. There are so many unknowables and unknowns, so it's for somebody who loves analytics. You can really dive in, but it would be hopeless to try to present that to every client. So, we have really tried hard to listen to our advisors, to listen to our consultants like Derek around you know, how can we help advisors best? Present this in ways to clients where they are going to understand and follow the plan. 

  • 14.43: Justin talks about inflation household by household, when they lasted innocent an adjustment. He says that it is great work for a computer but terrible for a human. So that's the kind of thing that we are trying to make this kind of service. Long term advice service really scalable for a practice. 

  • 19.01: Justin talks about the challenge of taking complex functions and making it simple which is great for clients. It is also great for advisors and researchers.

  • 20.03: Jason says if you are fortunate enough that your Monte Carlo score is 100% every time that you go and do it great like you got you tell clients they got next to nothing to worry about. But if the score is less then Income Lab frames the news in more human terms and makes it more digestible. 

  • 24.16: The industry or the culture around retirement needs less negativity, says Justin.

  • 24.37: Retirement is this special thing that by its nature actually gives retirees a lot of power, a lot of power to manage risk. 

  • 26.21: Justin discusses how patience and scaling are his biggest challenge. 

3 Key Points

  1. Justin talks about the software that they are using and what is their software doing that is different than everybody else?

  2. Jason talks about the visualizations that Justin and his team have created around patterns of retirement income and patterns of retirement spending. He found those both insightful and also easy to understand for clients to show that too often the focus is on you know how much his portfolio generate every year. 

  3. Jason appreciates how good Income Lab's features are and how user friendly they are.

Tweetable Quotes

  • "Retirement isn't static, people don't plan and follow it to the letter until they die or run out of money. Clients don't fail in retirement, they adjust." -  Justin

  • "There is a lot of fear and anxiety around retirement, but we found that kind of more realistic dynamic planning really improves not just the objective outcomes for people in retirement. That is obviously super important, but also kind of a subjective experiences of clients and retirement." - Justin

  • "There are clients, who say that retirement is dynamic, that adjustment is normal." - Justin 

  • "We have traditional Monte Carlo where you are using the same capital market assumptions for every period of the plan. We also have regime-based Monte Carlo, which just allows you to have near-term assumptions and long-term assumptions that solve a problem: a lot of advisors would like at some periods to project lower returns in some asset class or maybe all asset classes. And then we also allow advisors to use historical return sequences and probably most importantly inflation sequences." - Justin 

Resources Mentioned

Fintech ImpactJason PereiraFintech