investing janet kidd stewart |

Can a robot handle your retirement?

Fledgling online investment advisory services, nicknamed robo-advisers in financial circles, are moving squarely into retirement planning.

Betterment, one of the largest such firms with about 80,000 users, is unveiling a feature called Retire­Guide that lets customers enter information about their spouses and non-Betterment accounts to get a picture of their long-term financial situation.

The tool tells them how much to save and in what type of accounts — taxable, tax-deferred or Roth accounts — as well as when they can retire and how much income they're on track to be able to spend once they get there.

Alex Benke, the company's director of advice products, called the move a step toward "demystifying what's probably the most complex financial goal, retirement."

The company already offers tools geared to people living in retirement, including recommendations on managing portfolio withdrawals. The new tool is aimed at people saving for retirement, whether they are 20-somethings or 50-somethings with years yet to go.

It asks a few basic questions about users' savings rates and total holdings, their age and expected time horizon to retirement and where they live (for estimating living costs). It also asks for detailed personal information, including a Social Security number, which the company claims will be encrypted.

In a product demonstration, Benke used a hypothetical couple, ages 43 and 45, with an eye-popping $425,000 in combined annual income. They already have saved $1.4 million and are kicking in $55,500 in savings each year.

In order to spend 64 percent of their pre-retirement income in retirement, about $272,000 in today's dollars, the tool tells the couple they'll need to save more than $91,000 a year to retire in their 60s. Using a wealthy couple for the example points out that the model assumes far lower income replacement rates at nosebleed salary levels, on the assumption that those savers are accustomed to living on substantially less than their gross income due to taxes and savings, Benke said.

Nowhere in sight is an estimate on the total portfolio size that income would require, and that is by design, Benke said.

"The industry has been so focused on that number, and I think it confuses people more than it helps," he said.

There are plenty of other retirement income calculators available online, but the move by Betterment is another step closer to providing customers with some of the more traditional financial planning tasks in addition to just investment management.

Among the tasks it still can't handle: evaluating the investment choices you've made in your 401(k) plan (though Benke says the company is working on a way to connect users with a database that would provide publicly available information on thousands of plans). It can only plug your account balance into your overall total financial picture.

And it defaults users into an assumption that they will begin collecting Social Security in the year they retire from work, rather than offering strategies for making optimal benefit choices. Users can, however, model future benefit cuts to reflect shortfalls in the program, or take Social Security completely out of the equation.

The offering gets the robo-adviser out of just investment management and into the heart of more complex financial planning tasks.

Investment industry powerhouse Charles Schwab launched its own automated investment service this year at no charge for assets under management — compared with management fees of 0.15 percent to 0.35 percent at Betterment — though some industry observers balked at the characterization as free because the service holds a relatively high position in cash, on which Schwab makes money.

Schwab and other online advisers, including Betterment and Wealthfront, offer tax-loss harvesting and some also offer guidance on knowing which types of investments are best for retirement accounts.

Other online services can guide users to their best Social Security claiming strategy or an optimal way to draw down retirement accounts (check out

But Michael Kitces, research director for Pinnacle Advisory Group, pondered in a recent blog post about whether the online services will be able to completely replace human advisers.

"Will clients really be willing to stay the course through turbulent markets and change their behavior for the better because a computer told them to do so?" he wrote.

That's a tall order, even for humans.

Janet Kidd Stewart writes for the Chicago Tribune.