Retirement Planning: Retirement Income a Riddle

The Financial Planning Association’s annual retirement survey, “2009 Financial Adviser Attitudes and Perceptions About the Retirement Income Distribution Market” released in mid-December, also found that advisors are spending the bulk of their time addressing clients’ retirement income needs.

The FPA research, conducted by Diversified Services Group and sponsored by Nationwide Financial Institute of Retirement Income, found that 50% of planners’ retirement planning time is focused on retirement-income-related activities, “such as calculating a client’s income needs, determining the appropriate asset allocation mix, developing a withdrawal strategy, and selecting and processing optimum investment products and solutions.”

Schneider and Gallant found in their research that because of changing market conditions, many advisors “have gravitated to an income floor methodology for building portfolios, leveraging some of the benefits of the previously identified total return and pooled methodologies.” What’s more, the two researchers say that there is still a “high degree of skepticism among advisors” regarding fundamental aspects of managing retirement income portfolios, with less than half of the advisors agreeing that Modern Portfolio Theory (44%) and historical performance assumptions (45%) remain valid.

The FPA research also says that advisors are using more “personalized approaches” to retirement income needs, and are ditching a systematic withdrawal approach.

Despite the market downturn, Gallant and Schneider’s research says that 61% of advisors have grown their retirement income business over the past year. Gallant cautions, however, that while there is “a lot of opportunity” for advisors to secure new clients, advisors must choose carefully which clients to take on. “You have clients who have devastated portfolios and they have unrealistic expectations of the advisors, so advisors have to make sure they can add value for these clients.”