Financial advisors are grappling with the unsettling reality that without careful planning, clients may not have enough saved for regular income streams in retirement.

In interviews with Income Planning, financial planners offered insight into tools that they feel work for clients.

“The big thing is to really save. You have to lay out a plan and stick to that plan,” says Carol Friedhoff, a certified financial planner with Savvy Outcomes, based in Dublin, Ohio. Maintaining proper asset allocation is also important, she continues.

No-load index funds are one way Friedhoff says she helps clients develop a plan to save for retirement. She says she finds these funds effective. The only time mutual funds may not be efficient is if they are managed funds with a lot of turnover that are not in a tax-advantaged vehicle, she adds.

The problem is not necessarily that people don’t have the money for retirement but that they do not have the expertise to determine whether they have enough to create sufficient income for retirement, says Jack White, a certified financial planner with Fidelis Financial Planning, St. Charles, Mo.

A financial advisor needs to work with a client to determine “what retirement really means to them,” according to White. He adds that many people do not even know what retirement means and what they want out of retirement, except for general concepts such as maintaining 80% of current income in their retirement years.

White says that, as a fee-only planner, he is more concerned with the process rather than just selecting products for retirement.

White recommends that clients make use of their 401(k) plans, if they have one, as well as personal savings. He says he is not a big advocate of annuities or of products that create income streams. Rather, he suggests clients use savings to access income as needed and do so in a more cost-effective manner.

One way to save for retirement is through the use of passive products, he adds.

Working in retirement is something that many people want to do, at least part time, because work keeps them active and connected with people, White observes. To illustrate, White says that, for years, he has been informally asking older employees at a local Wal-Mart if they enjoy working. He has found that for the most part, these employees say that they work because they want to remain active.

In addition to the benefits of remaining connected with people, White says that even an income of $1,000 a month can make a big difference in the amount a retiree will need to accumulate for retirement.

The concern these advisors are expressing is affirmed in a new study released last month. A quarter of independent financial advisors surveyed believe that only up to 40% of their clients will have adequate funds during retirement, according to a new survey out from Curian Capital, Denver. Curian is a registered investment advisor subsidiary of Jackson National Life Ins. Co., Lansing, Mich.

That compares with 10% of 1,305 surveyed advisors who believe that 81%-100% of clients would have enough income in retirement, Curian found. Still, only 15% of the advisors indicated that 41% or more of their time was spent finding income solutions for clients.

Of all the factors that jeopardize retirement income plans, 40% of responding advisors indicated that the biggest threat was “too little time to build sufficient wealth prior to retirement.”

Two of the most important income planning functions these advisors say is part of their job include determining a required savings and portfolio structure to meet future retirement needs (42%), and managing the portfolio along with distributions and withdrawals during the income draw-down phase (31%.)

For clients taking income distributions from their portfolios, 67% took 4%-5% of assets under management; 24%, 6-7%; 6%, 2-3% of AUM; and a respective 2% and 1% taking 8-9% and 10+%, the survey found.

For clients who are prepared for retirement, variable annuities and separately managed accounts, led the products used to implement their retirement plans. These products received 73% and 69% of advisor responses, respectively.

But for clients who are not prepared for retirement and who have a financial gap between current assets and assets needed, the advisors said the 2 major products they use are use variable annuities and mutual funds, with 67% and 64% responses, respectively.

Separately managed accounts were not used as frequently for clients who are not prepared for retirement. For instance, 55% of advisors who participated in the survey said they use SMAs for clients who are not prepared for retirement, compared with 69% of advisors saying they use SMAs for clients who are prepared for retirement.

Forty-six percent of the advisors said they look at investment products such as annuities because they offer benefits that allow for consistent income payments with the potential to be invested in equities. And 27% said they maintain pre-retirement equity proportions because lower yields on fixed income investments cannot keep pace with the impact of inflation.

SMAs were once used mainly for high net worth clients but now are retirement income planning tools available to all clients, according to Michael Bell, Curian Capital’s president and chief executive officer. Because of technology, he says, the SMA is now a product that Curian can offer with a $25,000 minimum.

Companies are starting to put a variable annuity wrapper around a SMA, Bell continues. That makes the SMA, in effect, a subaccount of the VA, he indicates. Curian is watching to see if this type of product is something that the company would want to pursue, he says.

SMAs are better suited to income in retirement because of the costliness of mutual funds including the cost of a tax drag, according to Chris Rosato, a senior vice president-strategic development with Curian. So, although the average cost of a mutual fund is 167 basis points or 1.67%, when the tax drag related to selling is considered, it can total 300 basis points or 3%, he continues. This compares with an average cost of 240 basis points or 2.4% for SMAs, Rosato adds.