Retirement planning is one of the key services advisors provide, but it can be difficult. There is no one-size-fits-all model because the circumstances and needs of individuals and couples differ widely and unlike asset management, retirement plans must take into account both sides of the ledger — assets and liabilities.
Moreover, says Michael Kitces, head of planning strategies at Buckingham Wealth Partners, current industry tools for retirement planning “are not very good.”
For example, they don’t provide an adequate framework to adjust from from two people in a couple to one, based on different longevity rates, said Kitces, who participated in a panel in the Engage 2020 virtual conference sponsored by the American institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA).
“There is a distinction between joint life expectancy for both and joint survivor life expectancy for one,” Kitces said.
He would ideally like to show clients a reconfiguration of a retirement plan where one person in a couple lives longer, say into their 90s, than the other person but “that’s hard to do in [current] software.”
Kitces uses a baseline of 95 for joint life expectancy for his clients but makes adjustments based on client preferences and their health history and/or that of their parents.
That’s unusual, according to David Blanchett, head of retirement research for Morningstar’s Investment Management group, who was also on the panel. “Seventy percent of advisors use age 90 as the age of death for clients regardless of their expected retirement age … [and] 90 is way too conservative.”