How Merrill navigates the bizarro world of retirement

“One way to get around [the gap between age 66 and 70] is to provide an annuity which would provide the income over those four years, and they would get the step up at age 70,” Laster says.

The Merrill expert noted that the calculus as to claiming Social Security could change dramatically in individual circumstances, for example when a client is in poor health.

Another key factor in providing adequate lifetime income involves decisions about drawing down the portfolio, and the composition of that portfolio.

While Merrill favors equity allocations of at least 30% to 40%, Laster says “spending rates are the critical success factor for a safe retirement — in other words, restraining spending matters most.”

Merrill’s research uses age as a key determinant of a sustainable spending rate: Obviously, an 85-year-old can spend much more than a 55-year-old because of his reduced life expectancy, and Merrill offers tables reflecting these varying rates.

Longevity plans

Another approach to improving portfolio sustainability are investments with downside protection, Laster says:

“We recommend combinations of variable annuities with guaranteed lifetime income; immediate annuities; or deferred income annuities (longevity insurance),” in part depending on results of an investment personality assessment Merrill has developed for clients.

The Merrill retirement path also factors in contingencies, particularly the wealth-draining possibility of debilitating illness necessitating assistance in daily living.

Common misconceptions regarding the need for long-term care (LTC) are that “it won’t happen to me” or that “the government will pay for my LTC,” but the realties are that over 70% of those over 65 will need some LTC and that need will either burden loved ones or exhaust one’s own savings, Laster says.

He enumerates five ways of addressing the problem: self-funding, an approach that clients with substantial assets could undertake if they wish; Medicaid, a governmental solution for the destitute; the highly limited support of Medicare; a traditional LTC insurance policy; or a hybrid life insurance policy including an LTC rider. For those not rich enough or poor enough to avoid LTC insurance, Laster notes that such policies are more affordable when purchased in one’s healthier 50s and 60s.

As to legacy concerns — the desire to leave a bequest to loved ones and charities — Laster cautions advisors not to make any assumptions, noting that results of Merrill’s investment personality assessments reveal many clients lack this desire, perhaps because of strained family relationships.

For those who do have this goal, Laster notes that life insurance may serve as an appropriate tool (and indeed notes that each investor goal is tied to a variety of products in Merrill’s retirement matrix).

Not all Merrill advisors follow the firm’s guidance on retirement planning. Laster said the firm disseminates its approach via white papers available to advisors and their clients, “which have had thousands of downloads;” breakout sessions at Merrill conferences; and other training and tools the firm provides.

“Penetration, though far from universal, is growing,” Laster says.

But advisors following the approach, which he terms “holistic,” have the opportunity to assist their clients with more than just investments and to broaden their discussion with clients to the deeper touch points surrounding health, family and legacy goals.

Or, as Laster bracingly puts it:

“If an advisor cannot address a client’s most meaningful retirement concerns, there will be other advisors who can.”