Financial-planning software doesn’t adequately address retirement risks: Study
Source Robert Powell, MarketWatch
BOSTON (MarketWatch) — In among the year-end statements now arriving in your mailboxes from financial-services firms are invitations to use their retirement-planning calculators. You’d be wise to ignore that offer.
Or, if you do, use them with this caveat in mind: Most tools neglect one or more significant retirement risks, according to a report in December by the Society of Actuaries and Actuarial Foundation (SOA).
History suggests health reform may work.
David Wessel explains the lessons of the Medicare Prescription Drug Benefit for the current health-reform debate.
“Financial-planning software makes more in-depth planning possible,” according to the report, Retirement Planning Software and Post-Retirement Risks. “But the majority of available tools are still not effectively addressing the wide range of individual issues related to retirement.”
The SOA analyzed 12 financial-planning software programs most commonly used by individuals and financial advisers. The tools were either available to individuals over the Internet or were designed for use by financial planners for their clients.
Failing to address key issues
– Longevity. The handling of longevity risk varies considerably among the programs with some apparent inconsistencies. This is an important planning factor because the range of lifetimes between users can be significant with different probabilities of living beyond a given age. (Last August, the Centers for Disease Control and Prevention reported that U.S. life expectancy reached almost 78 years in 2007.)
– Unexpected events and risks. Financial-planning software under-represents extreme events, such as the current financial crisis. The examined retirement programs generally were unable to analyze the risks of variable-rate mortgages or large declines in housing prices. The majority of software surveyed did not consider the possibility of a large stock market and housing market decline occurring at the same time that a person nearing retirement has lost a job.
– Housing: There is inconsistent treatment of housing as an asset for use in financing retirement. Some programs allow users to specify whether they are willing to sell their home to meet retirement expenses.
– Social Security: Software programs inadequately estimated the level of Social Security benefits users are entitled to, and did not direct consumers to the Social Security Administration Web site to obtain an accurate benefit estimate at no charge.
– Annuities: Software programs usually did not evaluate the possibility of annuitization — converting assets into lifetime income annuities — as an option to reduce risk. There was also a lack of consideration of different options for timing of payouts.
‘Some help is better than no help’
Not all agree with the SOA’s assessment. For consumers, any software is better than no software, said Joel Bruckenstein, a certified financial planner and publisher of “T3: The Newsletter” and author of the 2009 Software and Technology Survey.
The problem, according to Bruckenstein, is that the firms and organizations that offer free software programs are between a rock and hard place. Consumers won’t use anything that takes longer than five minutes to complete, but any software that takes less than five minutes can’t address all the factors that need addressing — such as the timing of Social Security benefits, the use of home equity in retirement, or life expectancy.
“For consumers, these types of software programs are a good start,” Bruckenstein said. “Some help is better than no help.”
As for the financial-planning software programs used by financial professionals, such as EISI’s NaviPlan, Money Tree and PIEtech’s MoneyGuidePro, Bruckenstein said much of the SOA’s criticism is somewhat unfair. For instance, the SOA report criticized the default longevity settings used in the professional programs. But to Bruckenstein’s way of thinking, any professional worth his or her salt wouldn’t use the default — they’d override that setting and plug in more personalized data. “The defaults are starting points,” he said.
Bruckenstein said it’s somewhat true that software programs used by financial professionals don’t take into account unexpected risks and events. But that’s a function of which professional is using which software and which entity is regulating that professional. In some cases, for compliance reasons, an adviser might not be able to factor in unexpected risk and events.
As for the criticism that housing is not considered in most retirement-income planning programs, Bruckenstein said it’s near impossible to get the industry to agree on whether such an asset should be included. “There’s no right answer,” he said. Some include it, some don’t. In the main, however, he said clients of professionals typically don’t need to tap the equity in their home in retirement. So there’s typically no need to include it in software programs used by professionals, he said.
Bruckenstein agreed that very few, if any, software programs used by professionals or consumers help users optimize Social Security benefits. Some do have links to Social Security’s Web site, but he said adding this functionality could be difficult. “Some programs cannot give you every scenario,” he said.
As for annuities, there’s no industry agreement on the use and value of such products in a retirement-income plan, he said. Insurers tend to want such solutions included in software programs while other entities don’t.
Few use planning tools
Now, whether these programs have flaws and whether those flaws are significant might not matter one whit in the hearts, souls and wallets of average Americans. According to the SOA, which also conducted a survey of consumers, 55% of individuals “are skeptical about retirement computer software and online tools, saying they have little to no trust that the tools provide an adequate assessment for retirement planning.”
What’s more, the SOA asked Americans which types of tools, resources or services they or their spouses used to prepare for retirement. The result? Just one in 10 surveyed used retirement planning software, while 36% relied on advice from friends and family. Here’s hoping their family and friends know a thing or two about longevity, Social Security and behavioral finance.
Read the SOA’s release and report at this site.
Read Bruckenstein’s report at this site.
Robert Powell is the editor of Retirement Weekly. Learn more about Retirement Weekly here.
60 MINUTES: “DELAY, DENY AND HOPE THAT I DIE” (print version)
Segment from January 3, 2010, focuses on the problems getting claims through the red tape at the Veterans’ Benefits Administration.
NOTE from Larry Scott, VA Watchdog dot Org … Following is the print version of the 60 MINUTES segment on the Veterans’ Benefits Administration.
Why The VA Frustrates Veterans
60 Minutes: Two Wars Are Slowing The Large Bureaucracy, Delaying Benefits
(CBS) There is a sacred tradition in the military: leave no one behind on the battlefield. But many veterans are beginning to believe their country has left them behind at home, once they’re out of uniform and in need of help. That help is supposed to come from the Department of Veterans Affairs and the financial compensation it gives to veterans disabled by their military service.
It was Abraham Lincoln who said the purpose of the VA was to “care for him who shall have borne the battle.” But the wars in Iraq and Afghanistan have pushed the VA further behind in that mission, and today there are a million veterans waiting for the VA to handle their disability claims.
That has led some to latch onto another motto making the rounds for how the VA operates: “Delay, Deny and Hope That I Die.”
“When I hear that, I will tell you that it really troubles me. As somebody who has devoted 35 years of my life to this organization, and to serving veterans, it’s extremely troubling that there are veterans who feel that way,” the VA’s Deputy Undersecretary for Benefits Michael Walcoff, told 60 Minutes correspondent Byron Pitts.
Last year, $30 billion dollars – one third of the VA’s total budget – was paid in disability compensation to nearly three million veterans.
To receive a disability benefit, a veteran has to be honorably discharged.
“They have to have a current disability, and provide evidence that it was service related?” Pitts asked Walcoff.
“That it’s connected to their service, right,” he replied.
“Why, then, is the claim form 23 pages long?” Pitts asked.
“A 23-page application form I think is probably, goes beyond just what is required. And one of the things that we’re looking at is to try to simplify the process,” Walcoff said.
That process has been strained by a flood of disability claims – everything from combat wounds to injuries off the battlefield, illnesses and psychological disorders. Since 2003, 400,000 claims have come from veterans of the wars in Iraq and Afghanistan, hundreds of thousands more from aging veterans of earlier conflicts.
Add to that the recession, which is forcing more veterans to turn to the VA for help. Paul Sullivan was an Army scout during the Gulf War in 1991 and later spent six years working at the VA, analyzing trends in disability claims.
“All of those things have resulted in the Veterans Benefits Administration facing a backlog of one million claims,” Sullivan told Pitts.
Sullivan said the system is “absolutely overwhelmed.” He is now executive director of Veterans for Common Sense, a group that champions veterans issues.
“Veterans wait on average about six months to receive an initial answer on a disability claim. If a veteran disagrees with VA’s decision, the veteran waits another four years. That is a crisis,” Sullivan said.
And that’s how Army veteran Joe Devins sees it. In late 2003, he was on patrol in Baghdad when he says an IED exploded near his truck.
Remembering the blast, he told Pitts, “I’d say for the first few seconds afterwards, I wasn’t really sure if I was dead or alive.”
Devins left the Army in 2004 and now receives $704 a month for a back injury and for migraine headaches that he says were caused by the IED. Devins also claims to suffer from sleeplessness, anxiety and anger. “I haven’t had a single night’s sleep without either over-the-counter or prescription medication since probably December of ’03.”
Yet it wasn’t until two years after his discharge that a VA counselor told Devins he had PTSD (Post-traumatic stress disorder) and should apply for benefits. So he did.
Ten months later, the VA rejected his claim.
Asked why they denied the PTSD claim, Devins told Pitts, “Because they said I had to prove, show them proof that the incident with the IED actually happened.”
But Devins was already getting benefits for the migraines he says were caused by the IED. Asked if that doesn’t prove he was there, Devins told Pitts, “I would think so, but apparently that wasn’t enough proof for them.”
“What do you think they were saying about you, though?” Pitts asked.
“That I was making stuff up,” Devins said. “That I was just out to get money.”
The VA doesn’t say that Devins is making up his claim, only that he can’t prove it. He gets benefits for migraines, simply because they started while he was in the Army. But there is no mention of an IED explosion in his military records.
Devins’ situation is not uncommon. It can be difficult to pin down a particular cause of PTSD. So the VA says it is changing the rules for these claims, and veterans will no longer have to prove a connection between specific incidents and their Post-traumatic stress disorder. Changing the rules will take some of the work load off of people like Ron Robinson, a VA employee for 13 years, and a veteran who spent 20 years in the Army.
Robinson told Pitts he was proud to serve and work for the VA, but that he’s not proud of the work the VA is doing. “We can do better,” he said.
Problems in the VA’s benefits branch have been the subject of GAO reports and congressional hearings for years. Starting in 2007, the VA received sizable increases in its budget and began hiring thousands of new employees. Yet the backlog of claims keeps growing.
“We keep tryin’ to fix it, but it keeps gettin’ out of hand. We throw more money at the problem, more people, we still have the problem,” Robinson said.
“So, what is it then? If more people can’t fix the problem, more money can’t fix the problem, how do you fix it?” Pitts asked.
“It’s a culture. It’s a leadership problem,” Robinson replied.
Robinson points to the VA’s requirement that employees meet production quotas. It’s a convoluted system of earning points for processing the paperwork in a claims file. The idea is to bring down the backlog, but Robinson says it also leads employees to make mistakes.
“Because they’re focused on, as opposed to dealing with this veteran’s case properly, they’re focused on getting their points for that case?” Pitts asked.
“Of course. Anyone will tell you that,” Robinson said.
Asked what happens if employees don’t meet their quotas, Robinson said, “Well, if you don’t get your points, you know, you don’t get bonuses, promotions, you know, you don’t get the bennies.”
“I don’t believe that they’re being pressured to produce claims at the expense of quality,” the VA’s Michael Walcoff said. “We stress over and over again to our employees that quality is our number one indicator, that that’s absolutely a requirement for successful performance.”
But last March, the VA’s inspector general discovered that the VA was making more mistakes than it reported: the internal investigation found that nearly one out of four files had errors. That’s 200,000 claims that “may be incorrect.”
Attorney Douglas Rosinski has been handling veterans’ cases for ten years.
He characterizes the VA’s disability benefit system as “broken.”
“This is one vet’s file,” Rosinski told Pitts, showing him a cardboard box full of documents. “I’ve seen claims files that were two or three of these boxes.
Claims are being denied unfairly, Rosinski says, because VA employees don’t have the time to read the files thoroughly. “When you get a denial, and it says, ‘We didn’t see,’ that’s right. I mean, they’re not lying, but if you don’t look, you don’t see. And even if you’re looking, it’s hard to find out what’s in there,” he told Pitts.
Michael Walcoff told Pitts there is no incentive to deny claims. “And there’s no pressure from anybody to deny a claim. And I can’t say it any simpler than that.”
David Pitts is an Air Force veteran and one of Rosinski’s clients; he served for 18 years.
“Is your country serving you now?” Byron Pitts asked.
“It’s not my country that’s doing this, it’s the VA. You know, there is no prouder American than I am,” David Pitts replied.
In 1968, David Pitts was on temporary duty in Korea when the Tet Offensive in Vietnam caught American forces off guard. Pitts says he was quickly dispatched to deliver communication codes across Vietnam when his helicopter made a hard landing.
“When we hit, we hit hard, got out of that and I didn’t have any problem for that for about a year. But this was what I started receiving the VA disability for it,” he said.
David Pitts receives $644 a month for back and leg injuries that he says are related to the crash. He also believes he is eligible for additional benefits because Vietnam War vets with illnesses that could have been caused by exposure to Agent Orange are given automatic compensation.
The problem for David Pitts is he can’t prove he was even in Vietnam. He says his two brief assignments were under verbal orders, and he was told there are no records of his having been in the country.
“You had people and equipment just flooding into Korea and suddenly Tet happens,” he explained. “And it was just – it was a period of mass confusion.”
He said recordkeeping wasn’t a priority at the time. “Recordkeeping was not any type of priority at the time.”
In recent years, David Pitts says he tried to find his former commanding officer from Korea, plus a hometown friend he says he ran into while in Vietnam, but both had died. Without corroboration or records, Pitts never applied for the benefit. Then in November of 2008, out of the blue, the VA sent him this letter.
“It says, ‘According to records with the Department of Veterans Affairs, you were stationed in the Republic of Vietnam during your military service,'” Byron Pitts read. “And you got this letter, you thought what?”
“Well, somebody has found something,” David Pitts replied.
Based on the letter, David Pitts filed a claim. It took the VA ten months to review it before denying it.
It’s an example of the complexity that both the VBA and veterans face in establishing what happened years – sometimes decades – after events have taken place. The VA says it needs evidence to grant a claim and it could not find any records putting David Pitts in Vietnam.
The VA told 60 Minutes that the letter was sent by mistake, something it has not explained to David Pitts.
The Obama administration and the VA say they have given top priority to ending confusion over military records and that new computer technology will someday track veterans from their first day in uniform through the rest of their lives.
“Why should veterans believe what you say? That, ‘Ah ha, now we’re gonna get it right’?” Pitts asked Michael Walcoff.
“That’s a tough question,” he replied. “Because, certainly, some of the problems that we see in VBA have existed for quite a while. There have been efforts, believe me, to try to improve the system.”
“The one difference that I think really is in place right now is that, I believe that we are seeing the advent of technology that is going to allow us to really change the basic way that we process benefits,” he added.
“Why should the average American care about the fact that veterans, their benefits are delayed, whether it’s three years, five years, seven years?” Pitts asked Ron Robinson.
“Put on a uniform,” he replied. “We served our country honorably and faithfully. And we deserve, we deposited into America’s bank account. And when we come home, it’s time for us to make a withdrawal. That’s why we should care.”
Dennis Hopper battling his wife; says she’s after his will
Dennis Hopper was already fighting against advanced prostate cancer. Now the 73-year-old actor is turning up the heat in his battle against his wife, 41-year-old Victoria. He filed for divorce in January, and according to published reports, the key factor is his will.
Victoria is a 25% beneficiary under Hopper’s will. But, in the case of divorce, the couple’s prenuptial agreement says that she gets nothing. And that’s the sole motivating factor behind the divorce, according to Victoria. She blames his three children from a prior marriage and says that Dennis is not making rational decisions, due in large part to the medication he’s taking.
In other words, she says it’s all about the estate planning.
And it’s hard to argue with that point. Dennis Hopper’s lawyer was in court last week, seeking a restraining order against Victoria to keep her away from him. His attorney filed a doctor’s report saying that his estranged wife is hampering his recovery. The doctor feels that the less he sees of her, the better.
Why? According to papers filed in the divorce proceeding, Dennis says that she’s after his will. Dennis claims that in November, Victoria’s mother told him he should change the will and leave everything to Victoria, because he was going to die soon. Dennis also says his wife and mother-in-law would wake him in the middle of the night and badger him about his will.
So, yes, it seems the divorce is all about the estate planning.
But who is the bad guy here? Is it Victoria, a scheming gold-digger after his money? Dennis says so. He feels he gave her every luxury he could, which of course only made her want more.
Or are Dennis’ children the bad actors? Are they taking advantage of their father in a weakened state to cut his wife out, so they can get more? Or is it Dennis himself? Victoria says he threatened to kill her, and she found a loaded handgun and shotgun in her bedroom, despite the fact they were living with their six-year-old daughter.
According to Dennis Hopper’s doctor, he’s perfectly capable of making his own decisions and is in fine mental health. It seems like the Judge agrees, because the divorce is going full-steam ahead. Dennis got his restraining order a few days ago.
So, it looks like Dennis and his children will get their wish, and Victoria will get cut out of the will. Unless he succumbs to his battle with cancer first, that is.
The really sad part of this saga isn’t that it’s happening to the Hopper family. Rather, to me, the really tragic part is that this type of family drama is far too common. Families often place aging or disabled seniors in the middle of a tug-of-war over money, especially in second marriage situations. Do you think people stoop to this level only when millions of dollars are involved?
No! In this economy especially, I see families act just as ruthlessly over $100,000, or even less. Too many people see sickness and death as a financial opportunity. And that’s the real tragedy.
There is some hope. A well-crafted estate plan, from an experienced estate planning attorney, is a good start. And a vigilant family who protects aging or dying loved ones from unsavory sorts is a must.
The problem is that spotting the true gold-digger isn’t always easy. Sometimes it’s a new spouse or girlfriend. Sometimes, it’s the children from a prior marriage. Other times, it’s a caregiver.
Regardless, anyone who thinks that this only happens in Hollywood–and that it can’t happen to their family–needs to think again. Posted by: Author and probate attorney Andrew W. Mayoras, co-author of Trial & Heirs: Famous Fortune Fights! and co-founder and shareholder of The Center for Probate Litigation and The Center for Elder Law in metro-Detroit, Michigan, which concentrate in probate litigation, estate planning, and elder law. You can email him at firstname.lastname@example.org