Taking a robo-adviser out for a spin

According to my new robo-adviser, I can retire comfortably when I'm 80.

I know this because nearly all of us here at the Inquirer were offered the chance to take a robo-adviser out for a spin through our workplace retirement plan with Vanguard, the indexing and mutual fund giant.

Vanguard partnered with Financial Engines to crunch the numbers on our retirement projections - based on age, savings rate, and income - to forecast when we can retire.

Financial Engines works with 401(k) retirement plans through employers. Some of the newer robo-advisers are open to anyone and offer low minimums.

I promised to take the robo out for a spin and report back on the robo-recommendations.

Here they are.

Originally, I had my pile of pennies entirely invested in the Vanguard Wellington Fund - what's known as a balanced stock-and-bond fund with about 60 to 70 percent in equities. The expense ratio is a measly 0.26 percent a year - nice and cheap (like me).

The robo recommended I swap into the following mutual funds:

Keep 31 percent in the current Wellington Fund; expense ratio 0.26 percent annually.

Put 30 percent in Vanguard International Growth Fund; expense ratio 0.34 percent annually.

Move 21 percent into the trusty Vanguard 500 Index fund, which tracks the stock market.

Put the remaining 18 percent in the Vanguard Mid-Cap Index Fund, expense ratio 0.07 percent.

Dan Wiener, who edits the Independent Adviser for Vanguard Investors and advises investors on which Vanguard funds to pick, gave his thoughts on Financial Engine's robo-adviser choices.

His take: "That's a strange allocation, unless they assume you're working until you're 80. They've reduced your Wellington fund allocation because it has more bonds in it, about 30 to 40 percent in fixed income. Assuming you have decades to work, [it's another 35 years until I'm 80 - E.A.] practically speaking the computer says you need to have more in stocks. So that's why stocks are now a higher percentage."

Indeed, my allocation post-robo-adviser is the following: 13 percent in bonds, down from 41 percent before when my assets were just in Wellington.

The truth is, I will likely have to work until I'm 80 to retire with enough. And apparently I'm not alone.

When asked to describe their plans for retirement, 27 percent of Americans said they would "keep working as long as possible," a 2015 Federal Reserve study found.

An additional 12 percent said they don't plan to retire at all.

Many expect continued employment to be a significant source of retirement income, with 45 percent of all respondents expecting to continue working in some capacity to cover their expenses and 26 percent expecting their spouse to continue working.

Only 40 percent of all U.S. households had some savings in a workplace or retirement plan, such as a 401(k) in 2013, according to the most recent data from the Government Accountability Office.

That means 60 percent of all households the GAO surveyed had no savings.

And many of those people were working.

If you want to read the scary full report at the GAO's website, here's a link: www.gao.gov/assets/680/676942.pdf.

There are other reasons people expect to keep working - in particular, student loans.

Half of U.S adults with student loans delayed contributions to retirement accounts, a 22 percent jump from 2013, when 41 percent delayed saving for retirement.

An increasing number of Americans are working a second job as a result of their monthly student-loan payments, with 46 percent moonlighting, in a survey of 1,005 U.S. adults conducted in March by Harris Poll on behalf of the American Institute of CPAs.

As a result of student loans, four in 10 adults are living with roommates instead of living alone (40 percent), delaying the purchase of a house (40 percent), or have moved in with family members (37 percent). Family planning also is delayed, with many people postponing both marriage (20 percent) and children (19 percent).

Some housekeeping items, one for Wharton alums and one for women of a certain age (ahem, I'm so there).

First, for Wharton alums: On Friday, the Wharton-Jacobs Levy Prize for Quantitative Financial Innovation will be awarded to Nobel laureate William F. Sharpe at the Spring Forum of the Wharton School of the University of Pennsylvania.

Wharton's Spring Forum event isn't in Philly, however, but instead takes place in New York City, at the New York Hilton Midtown in Manhattan.

Second, a heads-up for the ladies: For women aged "50 and forward," the Transition Network offers its annual "Women in Transition" program Wednesday, May 25, from 4 to 8:30 p.m. at the Trianon Apartments, 20 Conshohocken State Rd., in Bala Cynwyd.

The purpose of this workshop is for women to navigate change in their lives, create a "next steps" action plan, and engage and connect with other women. For information and cost, contact Chrissa Merron (Email: cbmerron@verizon.net) or visit the Transition Network and search under the Philadelphia Chapter (www.thetransitionnetwork.org).


215-854-2808 @erinarvedlund