3 Tools to Build and Protect Retirement Income

Three investment managers discussed ways to plan for and protect retirement income at Envestnet summit

Russell's Plimsoll Line helps clients determine their funded ratio, much like a pension plan. Russell's Plimsoll Line helps clients determine their funded ratio, much like a pension plan.

Overcoming the many challenges associated with investing for retirement is a work in progress that requires constant innovation in thought, technique and approach.

The macro environment – persistent low interest rates – doesn’t make things any easier, nor do increasing longevity risk or the rising costs of health care.

As such, the retirement discussion today is centered around the importance of income generation, and if advisors want to ensure their clients have sufficient income in their retirement, they need to be working closely with their clients to create well-tailored retirement plans, by using the innovative tools, technology and investment vehicles that continue to come forth into the retirement planning space.

At Envestnet’s 14th Annual Advisor Summit in Chicago on Thursday, three leading investment managers discussed some of the tools they believe will help advisors to help their clients meet their retirement income goals.

Ross Znavor, director and head of CoRI Index Distribution, BlackRock

Since BlackRock launched its CoRI Retirement Index Series last July, the CoRI website has had more than 400,000 hits, says Ross Znavor, director and head of CoRI Index Distribution at BlackRock.

The CoRi indices allow advisors and investors to calculate either how much estimated annual income an investor’s savings will provide throughout retirement, or, conversely, the level of savings an investor needs to generate a desired amount of annual income throughout retirement.

As income continues to remain front and center in the retirement discussion, the tool is vital for investors, Znavor says. The CoRI Indexes — which are designed to converge with the median price of an annuity at age 65 — will give advisors a whole new starting point for the retirement planning conversation, as well as support better informed discussions between investors and advisors on strategies for securing critical retirement incomes, he says.

Rod Greenshields, Consulting Director, Russell Investments

No one is immune to the risk of running out of money before running out of life. 

Avoiding that dire predicament means engaging in a deep and meaningful relationship with clients, says Rod Greenshields, consulting director at Russell Investments, and constantly staying on top of financial plans to make sure they’re heading in the right direction.

Russell places a great deal of importance on what the firm has termed the Plimsoll Line, which is based on the principle of the funded ratio that pension plans use, to quickly communicate the status of a client’s financial plan.

Calculating the funding ratio entails dividing a client’s assets by their liabilities, to determine what they need to do vis-à-vis their current spending patterns to provide for their retirement needs.

An investor with more liabilities than assets is at great risk of sinking along the way, Greenshields says, just like British ships of yore sank when overloaded with cargo.

The idea behind the funded ratio is to show both advisors and investors that a portfolio can only carry spending loads that remain safe. The funded ratio also makes the retirement discussion more nuanced, Greenshields says, because it can help advisors have more enlightened talks with their clients about both spending habits and investment risk.

Brendan Murray, senior investment director, Putnam Investments

The most crucial time period for both clients and advisors spans the years right before a client hits retirement to right after she retires.

This is when any major change – a drawdown, a market event — can have a serious impact on wealth that has been created, says Brendan Murray, senior investment director at Putnam Investments, and that can jeopardize even the most carefully crafted and well monitored portfolios.

While most still believe that diversification is the key to mitigate downturns and it certainly has its merits, Murray believes it’s important for advisors to go even further by incorporating absolute return strategies into client portfolios.

By definition, these strategies pursue returns independent of a traditional benchmark index like the S&P 500 Index or the Barclays U.S. Aggregate Bond Index. Absolute return investing is unconstrained, he says, and can go anywhere to achieve the most efficient risk-adjusted return for investors.

Including absolute returns protects portfolios and pursues target returns with lower volatility than traditional funds, Murray says. These funds are a great way to diversify a traditional portfolio and protect it during the key years right before and right after retirement.

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