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Retirement Planning > Spending in Retirement > Income Planning

Income Planning As Advisors See It

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Are financial advisors providing adequate retirement income planning?

To find out, researchers at LIMRA completed a survey in late 2009 and four focus groups in early 2010. The study sampled views of different types of advisors, over 900 in all, to determine whether they were conducting retirement income planning with clients and what challenges they felt impeded their ability to provide comprehensive retirement income planning.

Overall, 9 out of 10 advisors said they conduct some form of retirement income planning services to clients and receive at least a third of their income through these activities.

About 40% of registered investment advisors and registered reps from broker-dealers indicated they spend at least half of their time on retirement income planning compared to 25% of other advisor-types surveyed (bank professionals and those describing themselves as financial planners or investment advisors).

With several million Americans entering retirement each year, it’s not surprising that almost half of advisors said they are spending more time on retirement income planning than they did two years ago. It is also not surprising that 56% of those surveyed plan to spend more time on this in the next two years (see chart).

Many retirees are worried about how long their money will last in retirement. Advisors said this is a legitimate concern, especially since today’s life expectancy charts suggest that people now age 65 have roughly a 50:50 chance of living to age 86.

Agents in the focus group were clear about the problem. “People have no clue about longevity risks and withdrawal rates so they need help,” said one. Another said: “They come in and tell me they don’t want to outlive their income.”

Given this past year of economic turmoil, one may think that clients are flocking to advisors looking for guaranteed investments. The research found quite the contrary. Most of the advisors said clients aren’t asking for guarantees (only 31% said clients do), because their clients don’t believe in them or are skeptical of products claiming guarantees.

So, clients want safety and predictability, yet don’t always understand what products they need to achieve this.

As one advisor observed: “People can’t chase yield because (that makes them) give up on safety and security.” But another suggested that “clients need to understand that retirement isn’t about taking all your money and putting it in a conservative bucket and making it last. They need to continue investing in the right vehicles.”

The other issue that concerns both consumers and advisors is taxes–the monkey wrench in financial and estate plans. Consumers are twice as likely to express concerns about tax issues as they are about longevity risk, according to the survey findings. For advisors, taxes are a tricky part of creating a retirement plan because future tax rates are based on unpredictable assumptions–and clients want predictability.

In general, municipal bond laddering was the common product strategy among many advisors in the focus group.

Because not all advisors are equally prepared for the retirement planning discussion, this presents an opportunity for financial services companies.

Advisors need help educating both themselves and their clients about the retirement solutions that will help mitigate the risks of retirement, including longevity and taxes. Financial services companies need to provide, simple, easy-to-understand materials that can help.

But let’s be clear, advisors want to be educated about retirement income planning strategies–how products fit into the overall solutions.

During the focus groups, advisors made it very clear that they do not want to be sold to. They said companies need to tread a fine line between educating and selling.

Others said the education should be simple and straightforward. Like the clients they serve, advisors will shy away from financial products they don’t understand or can’t easily explain.

One advisor put it this way: “Make the products less complex so clients can understand them. If they have too many features, it makes things confusing.” Another pointed out that “clients have diminished capacity to understand financial concepts as they age. This lack of financial understanding creates fear.”

The need for retirement income planning is only going to increase in the coming years. Today’s retired households have one-fourth of all U.S. financial assets, partially retired households have another 15%, and non-retirees who are 50 years or old have about 38%, according to LIMRA research. That is a lot of opportunity.


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