Sarah Morgenstern
Principal, Investments

Why We Invested: United Income

February 2, 2017

For more than 110 million Americans at or approaching retirement age, finance-related New Year’s resolutions are needlessly hard to achieve because the money management tools available to them are inadequate and outdated.

Most financial advice focuses on how to build assets, leaving consumers on their own when the time comes to draw down their savings intelligently to cover their expenses over a multi-decade timeframe. Many investment strategies for retirees are based on a single research paper from 60 years ago[i]. In an era of thriving FinTech innovation, it should not be so hard for aging households to get help managing their money in a way that’s both sustainable and allows them to confidently realize their personal goals.

As Americans live longer, the difficult choices households make about retirement spending are growing ever more complex, as households increasingly need to stretch out their savings over longer time horizons. Thanks to advances in modern health and medicine, Federal Reserve data suggests the average person today needs 50 percent more money during retirement than 40 years ago, and yet that same person has saved just 11 percent more since 1970.

And as the stakes continue to rise, the most common decisions about retirement spending assume heightened importance, with countless options to personal questions such as:

  • When I should start claiming social security benefits?

  • What’s the most tax effective way to spend down different pools of my accumulated savings?

  • How much money is enough for me squirrel away for long-term care and rising healthcare costs?

Given the growing size and economic clout of the 50+ cohort, the absence of innovators tackling these challenges represents a glaringly neglected market opportunity. People over 50 account for over 80 percent of wealth and 50 percent of purchasing power in the U.S. FinTech innovators—long focused primarily on millennials—are beginning to take note, with an increasing number of entrepreneurs shifting their gaze to the Baby Boomer generation.

At the forefront of this trend is United Income, led by Matt Fellowes, a seasoned FinTech executive who sold his previous financial wellness startup to Morningstar for over $50 million in 2014.  We invested in United Income because the company is squarely taking aim at the missing market for holistic, cost-effective financial solutions designed for over-50 consumers. Set to launch in the Fall, United Income’s retirement platform harnesses the most recent advances in financial technology, investment research, and behavioral finance to address aging households’ distinct financial service needs.

The company is building a suite of money management tools to simplify long-term financial planning: sophisticated software for modeling annual budgets, personalized investment advice that goes beyond outdated “rules of thumb,” and trusted Registered Investment Advisors (RIAs) available for dedicated counseling—all at affordable prices powered by nimble back-end technology that drives down costs for consumers.  

What’s distinctly powerful about United Income’s approach is that the company doesn’t stop at just providing advice and managing assets—the real key is the way the company plans to help customers translate their long-term goals into their day-to-day.

Their “retirement paycheck” product, for example, will do the heavy lifting for consumers by automatically determining a “safe-to-spend” budget, drawing down those funds on a monthly basis from a user’s tax optimal savings accounts, and depositing those sums directly into a consumer’s checking account. In doing so, United Income will help to recreate the certainty and predictability of a monthly paycheck, while also relieving the stresses and headaches of managing fragmented retirement funds.

As the AARP forecasts, the over-50 cohort will grow by 45 percent over the next 35 years, making up 40 percent of the U.S. population by 2050. Within the FinTech community, we are still in the early days of responding to the implications of this new normal for financial services. United Income represents an important milestone in pushing the field forward on this topic. If they succeed, they might well change how we think about finances during the stage of life that most of us work our entire careers to prepare for: our sunset years 


 

[i] Markowitz, Harry. Portfolio Selection, The Journal of Finance, Vol. 7, No. 1, pages 77-91. March, 1952. 

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