From the October 2009 issue of Boomer Market Advisor • Subscribe!

Managing money during retirement

Almost goes without saying-poor distribution planning will be an area of increased client complaints in coming years. Advisors who have poorly structured client portfolios and have advocated excessive withdrawal rates will be subject to career-ending arbitration hearings and regulatory action. With the consequences of failure so high, it's imperative that advisors fully understand the complexities of distribution planning.

As advisors have begun implementing distribution plans for clients' retirement portfolios, they've developed different theories and approaches, including systematic withdrawal, various types of annuities and time-segmented distribution plans.

What if you could build a solution that would address the complexities of retirement income distribution management in an easy-to-use, turnkey tool? The result would be a state-of-the-art, Web-based platform that provides a customized client proposal using a time-segmented distribution strategy that is easy to implement using the risk tolerance profiling built into the platform.

The profiling would automatically generate recommended investment portfolios across the time horizons of the various segments and tell the advisor how much assets need to be invested in each segment. The typical proposal would generate a 25-year income plan, divided into five five-year segments, and one more segment that would be invested in an equity portfolio with the objective of growing over 25 years to the original investment. If the client lived longer than 25 years, and the investments performed as planned, he or she could start the process all over again. As the client progressed out through the time horizon to later segments, those segments would be invested in gradually higher risk and potentially higher return producing vehicles. So, the early segments would possibly be invested in balanced portfolios while the longer-term segments would most likely be invested in all equity portfolios.

Advisors would have the ability to include other income sources in the plan, such as pension and Social Security income. Additionally, based on the client's answers to the profiling questions, the platform might recommend a percentage of the investment assets be placed in some type of a principal protected, guaranteed income producing vehicle, usually for the conservative portion of the portfolio. Of course, those guarantees are dependent on the ability of the insurer to pay the claims and may not keep pace with inflation, and principal protection applies only if the investment is held until maturity, so these factors need to be weighed against the client's risk tolerance.

The platform would also provide a powerful reporting tool that aggregates all the different investment accounts for every time segment and produces a goal-oriented performance report for each segment, including graphs that reflect the starting investment, the segment goal and progress towards that goal at any given moment.

Our firm began building such a platform two years ago, and it made its debut this year. The ability to easily match investment recommendations to the client's goals and risk tolerance has been well received by our advisors. The platform helps position advisors as retirement income specialists and is an outstanding business development and client acquisition tool.

As millions of baby boomers march toward retirement, smart advisors will be looking at the retirement income distribution planning tools they use-and the advice they give-to increase the odds that their clients enjoy happy and fulfilling retirement years. Having happy clients is always a good thing. Fewer complaints and more referrals are some of the most important by-products.

Dennis King is senior vice president of business development/fee-based sales with Omaha, Neb.-based Securities America Inc. Additional information is available at

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