Advisors may be giving retirees and near retirees bad advice without realizing it—in fact, Bill Meyer is certain of it, so he’s introducing a digital tool to help advisors plan their clients' drawdown strategies.

“I would say 90 percent of the financial advisors out there are using software that gives them the wrong answers,” Meyer says. “It’s because as an industry, we’re all focused on growing your money, not how it should be withdrawn during retirement.”

Meyer, president of Retiree Income and Social Security Analyzer, has launched Income Solver, software designed to optimize withdrawal strategies.

The conventional wisdom regarding retirement withdrawals is that advisors should first draw from a client’s taxable accounts, then tax-deferred accounts, then tax-exempt accounts, then non-deductable IRAs and finally from a non-qualified annuity—but Meyer says that’s not necessarily the case.

“Big institutions like Fidelity and Vanguard are using this conventional wisdom and it’s wrong almost every time,” Meyer says. “If you draw down in a strategic way, you can optimize your outcome, but if you drawdown willy-nilly and you don’t think about this in the context of the individual client, the client often ends up with less money.”

Consider a single client with a $600,000 nestegg: $250,000 in a taxable account, $250,000 in a tax-deferred account and $100,000 in a tax-free Roth account. Meyer says the conventional strategy would turn that nestegg into $1.8 million over the client’s planning horizon. Using the opposite of conventional wisdom—withdrawing from the tax-free account first, then the tax-deferred account, then the taxable account—would result in an additional $15,629 for the client across the planning horizon, he says.

If Roth conversions are used to keep that client within an average marginal tax rate of 15 percent over the planning period, the client would end up with an additional $122,129 throughout their retirement, says Meyer.

“Vanguard says that by coordinating Social Security and drawdown strategies, advisors can find their clients an additional 3 percent a year, and David Blanchett’s research puts that number at 1.6 percent,” Meyer says. “Our paper also found that optimizing these strategies creates value for clients, but it was a research paper. Advisors couldn’t really do anything with it. It was interesting, a nice read, but there were no tools.”

Theoretical strategies are great, says Meyer, but until the launch of Income Solver, advisors lacked a tool that would help them implement the strategies.

Income Solver, launched in May, is the result of 10 years of research and programming.

“If an advisor uses software, they can be compliant and go into some of these more technical areas, but a white paper can’t be replicated in real life,” Meyer says. “Technology is lowering the barriers to providing more comprehensive advice, mitigating the compliance risk and migrating advice to issues like Social Security and taxes.”

At the heart of the software is a tool that allows advisors to compare and analyze different strategies for asset allocation, asset location, rebalancing and withdrawal sequencing during a client’s "decummulation" phase.

Income Solver gives advisors the ability to strategize withdrawals to dedicated tax brackets by either withdrawing tax-deferred assets up to dedicated levels or by using Roth conversions.

“What we ideally want to do is withdraw to the proper thresholds, up to the limits of an individual’s tax bracket," Meyer says.

The software also uses strategies to maximize and maintain Social Security and Medicare benefits. Strategies can be compared graphically, such as through bar or line charts.

“We allow an advisor to create a strategy, analyze it and compare it to other drawdown strategies,” Meyer says. “There are thousands of options. It’s very complicated, but advisors can drill down and see how the strategies are different.”

Income Solver includes a visual interface that allows advisors to demonstrate the amount of “gamma,” or advisor alpha, that their advice provides to clients. The interface breaks down a client’s retirement income sources—for example, current assets, Social Security, defined benefits and any gains that result from professional advice.

“Gamma is the notion that you can get superior performance and value just by working with an advisor,” Meyer says. “Income Solver helps advisors illustrate some of the gamma they provide. An advisor can now show a client that by working with them and implementing certain strategies, their nestegg will last six years longer or will calculate to be worth $1 million more. It’s a nice discussion piece.”

Advisors can also create scenarios based on client behaviors, market projections, tax policy changes and increases or decreases in benefits like Social Security. These assumptions can be changed across different time periods.

Income Solver includes a publishing engine that produces personalized reports for clients that can be branded to an advisor’s practice, and Meyer’s Social Security tool, SSAnalyzer, to help optimize claiming strategies.

“Social Security is underestimated. It’s a huge part of the retirement picture,” Meyer says. “Maximizing Social Security can add years to a retirement account’s longevity.”

The most basic version of Income Solver, which includes a basic version of the SSAnalyzer tool, costs $1,200 per year or $125 per month. The most advanced version, which includes the Premier SSAnalyzer tool, costs $1,900 per year or $189 per month.