How is FinTech changing the retirement plans of tomorrow?
Curated by: Sergio A. Martínez
If there is something the FinTech landscape is transforming at an unprecedented pace, it’s the way we look at our finances. From mobile apps that help us control our budget, to online platforms that make investing easier and more accessible for the average person, today we have more options than ever when it comes to managing our money, down to our retirement plans.
And it’s not just individuals who are benefitting from these innovations either; businesses are increasingly able to take the opportunity offered by these technologies to streamline their financial operations. Whether it’s reducing the cost of processing payments or making it easier to access capital, new platforms and applications are helping businesses of all sizes to compete every day. And as the FinTech revolution continues to unfold, it’s clear that we’re only just beginning to see the impact that these companies will have on our lives and our future.
And our future is exactly what many FinTech companies are looking to improve, with more and better options for a specific need that is becoming more important each day: retirement plans. Access to retirement plans has long been a growing concern for many Americans, and FinTech startups are taking on this challenge, providing small businesses and everyday people with solutions and access that were previously out of reach.
“For many people, traditional retirement savings plans simply aren’t enough to provide the level of security they need in their golden years. FinTech companies are working to change that by developing products and services that can help people save more effectively for retirement. From automated investing platforms to personalized financial advice, the FinTech revolution is helping to make retirement planning more accessible and more efficient than ever before”, says Rod Aburto, Partner and Co-Founder at Scio.
So, what are some of the key areas where FinTech retirement solutions could offer a new perspective? We’ll look into two sides: From the business side, where offering retirement plans are more affordable and convenient, and on a personal side, with tools helping to navigate the complex world of financial planning.
Overcoming a challenge
For a small business, the process of setting up and managing a retirement plan could be both time-consuming and expensive, even though there are many ways to make an impact in their employees’ lives, the biggest barrier to offering this benefit is the cost; setting up and administering a retirement plan can be expensive, and small businesses may not have the extra cash on hand to cover these expenses, especially when they are just starting.
In addition, small businesses may not have the same negotiating power as larger companies when it comes to retirement plan providers, meaning they may have to pay higher fees. And yet another barrier is employee participation; for a retirement plan to be successful, employees need to be willing to contribute their own money. However, many workers are reluctant to do this, especially if they are already struggling to make ends meet.
“One of the biggest obstacles to saving for retirement is the high cost of living. Between housing, transportation, and childcare, many families are struggling to make ends meet. As a result, contributing to a 401(k) can seem like an impossible task”, continues Rod Aburto. “It’s difficult for families to save extra money when they rely on credit cards and loans. However, it is still important to save as much as possible for retirement, which is why FinTech companies looking into retirement solutions can make a difference. Every little bit helps, and it is never too late to start saving.”
Moreover, some small business owners simply don’t feel like they have the time or expertise to set up a retirement plan, worried about making mistakes or being overwhelmed by the paperwork involved. Nevertheless, thanks to the rise of FinTech, there are now several options that are much more accessible for small businesses.
For example, let’s look at Penelope, a “401(k) platform that gives small businesses an affordable and easy-to-use way to provide retirement benefits”, according to a profile published in Forbes. What this platform offers is a way for small business owners to set and automate different retirement plans, from pooled employees’ plans to more traditional 401(k), to even individual options for entrepreneurs to establish a strong corporate culture from the start, with minimal hassle.
And that last point is crucial. What FinTechs are also enhancing with these retirement solutions is the culture of planning and long-term engagement among smaller businesses, helping build a better tomorrow for everyone.
A more personal touch: The rise of the robo-advisor
Another side of the FinTech revolution, beyond helping businesses to offer benefits to their collaborators, is that retirement is also a personal choice on the part of the employee, but the necessary knowledge around this is often not very accessible to the average person, and making decisions on a very complex issue, like finance and investing, can be a daunting task. What could be done here, then?
“Arguably, robo-advisors are the most well-known of the FinTech innovations, which refer to automated online services that use computer algorithms to provide financial advice and manage customers’ investment portfolios. These products are increasingly targeting the retirement marketplace. The advent of a computerized approach to financial advice offers huge promise to provide people access to data they need to make smart retirement plans at very low cost”, explains a paper called “The Disruptive Impact of FinTech on Retirement Systems”, which sets to study the actual impact of these innovations in real people’s lives.
In this case, robo-advisors are a new breed of financial advisors that use algorithms and software to automate complex analyses of investments and financial risks. And unlike human advisors, robo-advisors don’t require you to set up an appointment or meet in person, generally with lower fees, making them a good choice for investors looking to be more careful with their bank accounts.
So, while this technology is still fairly new, it could have a big impact on the way people invest in the future, especially when it comes to planning retirements and financial security for the future, changing the way the financial industry currently works. And this is without taking into account how a huge market for these types of services comprises 50+ people, who tend to have more financial experience, but less familiarity with technology, a challenging gap for many FinTechs looking into this space need to navigate carefully. The same study cited earlier says:
“…technological design should be driven by users’ needs. Accordingly, startups should consider how the older population interacts with technology and the unique concerns they have, versus millennials [and] considerations of culture and gender, which should help inform developers to create products that can be personalized for subgroups within the older cohort. Treating this population as one homogeneous group ignores important differences within this diverse population.”
So while the idea of making financial decisions based on the advice of a robot might seem strange, the combination of ease of use, data-driven approach, and accessibility with affordable prices offer an interesting alternative for people of any age and tech familiarity to make informed choices about their future retirement investments and opportunities.
It’s time to start thinking of retirement not as an endpoint, but as the beginning of a new phase. With FinTech companies leading the way, we can look forward to retiring with more options and less worry. Have you started planning for your retirement yet?
The Key Takeaways
- Retirement is an important issue for everyone and a financial area where the FinTech space can really make a difference.
- Among the most notable innovations are platforms that make it easier for small businesses to offer retirement plans to their employees, improving their lives and engagement greatly.
- Robo-advisors that can also help individuals make better financial choices are a great help to build retirement plants, thanks to their data-driven approach that makes it easier to weigh the best options.
Scio is an established Nearshore software development company based in Mexico that specializes in providing high-quality, cost-effective technologies for pioneering tech companies. We have been building and mentoring teams of engineers since 2003 and our experience gives us access not only to the knowledge but also the expertise needed when tackling any project. Get started today by contacting us about your project needs – We have teams available to help you achieve your business goals. Get in contact today!