More Annuities Used in Income Portfolios

Once advisors have addressed the retirement income floor via a guaranteed product, they must then address how to provide clients with the extra cash that will satisfy their “wants” in retirement, he says. Advisors must still tackle the inflation and longevity hurdles by investing in the equity markets, Gallant says.

Gallant’s research found that, understandably, the volatility in the markets has forced advisors to make changes in their asset allocations.

The study found that while most advisors say they have not made significant changes to how they construct retirement income portfolios, many advisors have made some changes. “The most important steps they have taken in the past year are shifting the portfolio to a more conservative allocation, increasing the use of annuities, and increasing use of more conservative investments such as cash or fixed income securities,” the study says. A significant portion of advisors, the report says, define the most important step they have taken in response to market volatility as inaction–namely, staying the course without making major changes to allocations or investments.

The study also notes that many advisors have chosen to reduce exposure to U.S. and international equities, while increasing allocations to cash and U.S. fixed income investments. The research found that there has been “only modest change in the use of non-traditional strategies such as real estate, commodities, or hedging strategies, or other types of alternative investments.”