It is becoming increasingly clear that a commonly accepted precept of retirement income management is sub-optimal for many retirees. It will have to be revised.

The precept is that older people should have close to half their assets, or more, in fixed investments, and the fixed part of the portfolio should grow as people age.

Indeed, a majority of financial advisors say they usually recommend that people become more conservative in their investing when they retire. This finding came from a recent survey by Mathew Greenwald & Associates. Over half say they would recommend 65-year-olds with $500,000 in investable assets to have about half or less of their assets invested in equities.

A variety of forces are rendering that approach obsolete, including the rampant under-funding of retirement by the coming generation of retirees and the greater likelihood that new retirees will not have income from defined benefit plans.

Many people enter retirement with 3 attributes which, in combination, pose huge difficulties to financial security. These attributes are:

–A lot of remaining life expectancy.

–High lifestyle expectations.

–Relatively small levels of accumulation.

In view of those factors, having a high proportion of assets in bonds or bank certificates of deposit can reduce overall returns too much for the long retirement many can expect to have.

Retirees who have saved a minimal amount–which is most of them–simply must expose more assets to the risk of the equity markets in order to have a chance to get the returns they need.

Naturally, some difficulties are associated with this non-traditional approach, but there are potential solutions too. The difficulties center around the fact that many retirees are afraid of taking on more investment risk, and a market downturn early in retirement can severely hurt those heavily exposed to equities.

Fear of investment loss is real, according to a recent survey commissioned by NAVA, Inc., Reston, Va. This survey sampled 1,000 people ages 55 to 80 with investable assets of at least $75,000. Almost half (44%) of the older people surveyed say they are willing to take only little or no risk of investment loss. Just 57% can accept an investment loss of just 4% or more without feeling “very insecure.”

The impact? Two in 5 (39%) have less than a quarter of their assets in equities.

Many know the price this fear is extracting. A quarter (23%) acknowledges that they are not investing enough to get the returns they need to be financially secure. Significantly, the survey detected an underlying interest in having more investments in equities. Most respondents indicate they expect the stock market to produce higher gains in the next 3 years than their own fixed investments.

Some concern about the market is justified, of course. But there are products on the market that can effectively address both consumer concerns and the real risks of market downturn underlying them. These products are annuities with principal protection guarantees.

One effective solution is an investment that provides people with the upside of equities, while protecting them against what they fear: a market downturn.

To this point, the NAVA survey asked: “In general, how much would you value an investment which allows you to invest in stocks, and gives you the possibility of getting the high gains that stocks can provide, with a guarantee that over the long term you would not lose money”? Half (48%) see that idea as extremely or very valuable and a third (34%) as somewhat valuable. Only 15% see no value in it.

The survey measured interest in 2 types of annuities, both of which provide the upside of market exposure with protection against loss. One annuity offers a guaranteed minimum withdrawal benefit and the other, a guaranteed minimum account balance.

The response shows significant interest in both products. Half would consider buying each based only on the brief descriptions provided. Importantly, about 2 in 3 would pay 1% a year for such a guarantee. The real cost of the guarantee (in addition to other costs intrinsic to all annuities) is about half of that.

What impact will these products have if knowledge of them grows? Ten percent say these guarantees would very likely lead them to invest more in equities and 44% say it is somewhat likely to have that impact. Thus, a positive potential is there.

In my opinion, these results are a harbinger of what is to come in retirement income planning. The paradigm of financial planning for retirees will have to change from dependence on traditional notions of asset allocation alone to new approaches.

Greater use of guarantees that permit older people to stay more invested in equities (than in traditional approaches) is one effective solution. It could help a significant proportion of retirees enhance chances for a financially secure retirement.

Mathew Greenwald is president of Mathew Greenwald & Associates, Washington, D.C. His e-mail address is .