“What kind of retirement income do you want?” may be the most important question to ask in retirement income planning.

Why? Because it addresses the crucial emotional component of retirement planning that varies from investor to investor. In addition, it offers a vital context for the inclusion of annuities in retirement income planning that has been sorely lacking. Let me explain.

While a prudent financial advisor would never fail to assess an investor’s risk tolerance in devising a plan for accumulation, few advisors have incorporated a similar process for assessing a client’s risk tolerance for a retirement income.

To the extent that this assessment is ignored, this creates future liability potential that can otherwise easily be avoided.

Why is this important? The answer lies in the new ROI of retirement. In this case, ROI doesn’t refer to return on investment or rate-of-return, but rather, reliability-of-income.

Boomer customers are very much concerned with maintaining the lifestyle they desire during retirement, while ensuring that they not outlive their assets. Focusing on tools that uncover the “New ROI” for each client helps advisors quantify their clients’ fundamental and very personal concerns about reliability of income.

This information can then be used to create a retirement income plan and appropriate product implementation that is tailored to each client’s risk tolerance. Of course, this can’t be achieved without a well-conceived process.

The process begins with the recognition that not all retirement income sources are created equal. For example, certain types of retirement income are guaranteed, such as income from lifetime annuitization and variable annuity guaranteed minimum withdrawal benefits. Other income streams are not guaranteed and are, in fact, contingent upon the attainment of targeted investment returns over decades into the future. These other income streams may include investments in an IRA, a 401(k) or other qualified pension plan.

What percentage of guaranteed versus non-guaranteed retirement income is appropriate for any given investor? And, what targeted rates-of-return should be selected for the component of retirement income that is variable?

Advisors can answer these questions if they use a formal retirement income risk assessment process.

This process begins with the completion of an online questionnaire that results, for each investor, in a “guarantee factor score” and a “volatility factor score.”

The guarantee factor score determines what percentage of the client’s portfolio should be dedicated to a guaranteed solution, while the volatility factor score determines what investment assumptions should be used when investing for long-term retirement income. Taken together, the two scores provide financial advisors with the information necessary to illustrate a retirement income plan with just the right combination of guaranteed versus variable retirement income streams.

So basic is this risk assessment process that it is a huge step forward in improving retirement income planning.

This is particularly important to advisors because the suitability of products and financial solutions are well-served when retirement income risk tolerance is integrated into the plan.

For example, is there a better way to provide a compliant context and process around the selection of a variable annuity GMWB rider to serve as the guaranteed income component of a retirement income plan? Rather than positioning the VA as the “solution” to deliver retirement income, an inherently better approach is to position the VA as a vital component of a larger, more strategic retirement income distribution strategy.

Positioning VAs in this manner not only helps meet suitability requirements; it also leads to expanded VA sales among advisors who have traditionally shunned them.

Risk assessment for retirement income also strengthens the advisor’s role when it comes to providing clients with the best strategic support of their retirement income strategy. When coupled with an enhanced illustration system, the advisor is also able to properly illustrate both the variable and guaranteed income streams in accordance with a compliant process that boosts meaningful understanding by investors.

The time to ask the most basic question in retirement income planning has come. Simply ask clients, “What kind of retirement income do you want?” This puts the advisor on the way to offering them a superior retirement income strategy.

David A. Macchia is president and CEO of Wealth2k, Inc., Hingham, Mass. His email address is dmacchia@wealth2k.com.