Each year, Janus Henderson compiles the latest thinking for financial advisors servicing the high-net-worth marketplace. This year, we have identified three tactical strategies advisors may want to keep top of mind throughout the year.
1. The Decumulation Paradox
Despite the long-running narrative that Americans are not saving enough for retirement, new research has emerged that suggests some wealthier retirees are not spending enough. Specifically, retirees with investable assets greater than $250,000 are not systematically withdrawing money from their retirement accounts, but rather withdraw money on an as-needed basis. When faced with an expected expense, only 22% of retirees were found to draw the additional funds they need from their retirement accounts while about half adjust their budget and find other ways to cut back. In fact, among retirees with income greater than $100,000, approximately 38% are reinvesting their dividends, income, Social Security and other sources of income.
Experts in behavioral finance suggest that successful investors have developed good savings habits over many years, and as with any habit, these routines are difficult to break. Furthermore, some retirees who are comfortable spending their dividends and interest may feel a sense of discomfort when liquidating principal.
Investors with appropriate risk tolerance may feel more comfortable converting a greater portion of assets to income-producing investments such as annuities. Variable annuities are complex and should be considered long-term investments. Annuities are subject to investment risk and they limit access to the investment as a result of a surrender charges. They can have higher fees as well as tax penalties on certain withdrawals.