By Grant Easterbrook, Next avenue
About 20% of the American population is retired, which represents nearly 66 million people. Despite the large retiree market, however, venture capital investments in new tools and services to help “decumulation” have been relatively limited.
Decumulation is the phase of life where retirees must manage their nest egg and try to avoid running out of money.
Investors invested $17.8 billion in private U.S. fintech (fintech) companies in 2020, up from $14.8 billion in 2019. Only a tiny fraction of this increase in fintech investment goes to to tech startups related to decumulation.
There are several reasons venture capitalists aren’t investing in decumulation (which we’ll discuss later in this article), but despite the relative funding shortfall, we’ll first look at new services for Americans. retired.
To oversimplify, innovation in this space can be divided into three categories; new services to help family members manage the finances of loved ones, tools to help with estate planning, and businesses looking to modernize annuities and retirement products.
Assistance services for co-management of a loved one’s retirement
America’s mass of retired baby boomers may need help from family members to manage their retirement nest egg, longevity risk and potential mental decline. Companies like Carefull, EverSafe, and True Link Financial help loved ones monitor and/or manage a retiree’s financial accounts and protect against fraud, scams, and poor financial decisions.
The exact products offered by these three companies vary, but the general idea is to use technology to be proactively informed about a loved one’s finances rather than discovering problems after it’s already too late.
“Fintech tools protect family members by scanning financial activity for anomalies on all related accounts, credit cards, loans, and real estate records,” according to Howard Tischler, co-founder and CEO of EverSafe . “This is how scammers operate and why their schemes can persist for months or even years undetected. Alerts sent to a designated team of caregivers and/or trustees also make a critical difference in identifying problems before a lifetime of savings is lost.”
Online tools to simplify and manage the succession process
Many people need help navigating the maze of federal and state rules when it comes to estate planning and inheritance. Despite the word “estate” conjuring up the old mansions of Golden Age robber barons, every American needs estate planning in retirement. Estate planning is necessary to reduce both your personal tax bill and that of your heirs.
Fabric and Trust & Will are examples of two relatively new technology companies that can help with the estate planning process. Additionally, many of the major online legal support services such as LegalShield, LegalZoom and RocketLawyer offer elements of estate planning fully or partially online. Innovation in this space is not limited to the US: UK-based Farewill is an example of a foreign technology company offering online estate planning to its local market.
Companies Modernizing Annuities and Retirement Products
In many wealthy countries occupational pensions are becoming relatively less common and/or less reliable. This shifts the burden of managing a retirement nest egg and longevity risks onto the individual. Creating a simple, transparent, and easy-to-use digital retirement or annuity product can help solve the retirement crisis in America and around the world.
Unfortunately, fintech activity is relatively limited in the area of pensions and annuities in the United States. Due is the only independent US direct-to-consumer annuity or retirement technology startup that I know of.
Perhaps unsurprisingly, there are more pension and annuity technology innovators overseas, where pensions are more common. Maji, Penfold and PensionBee in the UK, Tountine Trust in Ireland, Vantik in Germany and Grandhood in Denmark are examples of technology companies trying to modernize pension and annuity products in overseas markets.
Why so few tech startups targeting retirement?
Over the years, I’ve asked founders and venture capitalists why the number of tech startups and overall investment in the decumulation phase of life is so low compared to the millions of retired Americans. . In response, three reasons are cited for the relatively limited fintech activity in decumulation.
First, venture capitalists (VCs) look for companies with the potential for rapid “hockey stick” revenue growth. Since supporting retired users usually involves customers and accounts that will become less valuable over time, Venture capitalists are often skeptical of a decumulation-related company’s ability to achieve “hockey stick” hyper-growth.
Second, the “typical” starter manual focuses on building scalable, web-centric business models with minimal human customer service and support. VCs often assume that companies that need to support seniors will need an expensive customer support system and lots of manual follow-ups from human reps. Pretty much or not, there is inherent skepticism about a business model focused on online catering for retirees.
Third, venture capitalists fear that the retirement industry is a “sold, not bought” industry. The perception is that most baby boomers are being sold retirement products by their financial advisor and they don’t shop around, read reviews online, and buy the best retirement products available. Venture capitalists fear new online decumulation services may gain major traction as financial advisers and brokers control relationships with potential clients.
Despite these perceptions, the massive size of the “retired” market calls for more innovative tech startups and venture capital backing. Venture capital investment in the health and well-being of retirees has already begun to pick up.
For example, in 2020 Techstars and Pivotal Ventures (a Melinda French Gates company) launched the Future of Longevity Accelerator to support early-stage innovation for older adults and their caregivers. The program has already helped launch 20 tech startups.
“Investor interest in this category is growing at an explosive rate, as recently demonstrated by our culminating event last week, Demo Day, which received two and a half times the number of viewers this year compared to last year” , said Keith Camhi, managing director of the Techstars Future of Longevity Accelerator.
It’s only a matter of time before the tech sector’s interest and investment in decumulation and retirement financial asset management catches up with the demographic reality of America.