1. Low fixed income returns can mean higher risk for pre-retirement portfolios.

It’s not that advisors aren’t aware of the low interest rates and the problems they cause for clients. Some 57% are very dissatisfied or dissatisfied with the current returns of fixed income in their client portfolios. As a result, advisors have to work more with clients to consider options like taking on more risk to generate higher returns when appropriate.

2. The 4% rule should really be a 2.4% rule, which most advisors aren’t following.

A majority of advisors still follow the 4% rule for retirement withdrawals. However, recent research from Wade Pfau concludes that 2.4% should be today’s optimal withdrawal rate for a moderate risk portfolio.

For advisors working with clients who continue to withdraw 4% a year, higher returns than those provided by fixed income are required. The use of certain annuities may help clients who need higher life-long returns, but advisors remain leery of these products.The study concludes that “today’s retirement portfolios very much resemble today’s accumulation portfolios."

3. Predictable income is most important to clients.

More than 79% of RIAs state that predictable income is more important than asset growth to clients, although retired investors still worry about the market more, or as much, as they did before retirement. Also complicating this situation is the fact that life expectancy has increased, so retirement savings must last longer.

4. It's risky to rely too much on a portfolio's total return to help fund essential expenses.

Many advisors count on these total returns when covering essential expenses. But, DPL states, this means advisors are exposing their clients to market risk despite the fact that clients say they want security; plus, “a bad sequence of returns can devastate their retirement plans.” Although 62% of advisors educate clients on sequence of risk, only 37% sometimes or almost never bother to explain this threat.

5. Cash is king when mitigating client risk.

Different approaches to mitigating sequence of returns risk raise “more questions about how advisors are making up for lower interest rates,” the survey states. The fallback strategy of having clients spend less money seems to be the answer to lower interest rate income. But the outcome of following this tactic is “not certain nor controllable, as it is impossible to know what a client’s expenses are,” the study states.

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6. Advisors are moving to stocks to ease lower fixed income performance, increasing risk.

Most advisors say returns from fixed income strategies over the last five years have been above 2.5%. Looking forward, 67% are overly optimistic, as they see those fixed-income returns above 2.01%. When asked how they plan to bridge the gap between low yield bonds and current client needs, as well as how they expect to deal with increased volatility, their answers appear to be equally hopeful.

7. Annuities are catching on a bit as a way to address longevity.

When asked how they deal with low fixed income yields, 32% of advisors state they have been moving fixed income assets into an annuity, up from 23% in 2019. Annuity usage also has doubled in response to longevity risk. However, to cope with market volatility, most advisors use dividend paying stocks.

7. Annuities are catching on a bit as a way to address longevity.

When asked how they deal with low fixed income yields, 32% of advisors state they have been moving fixed income assets into an annuity, up from 23% in 2019. Annuity usage also has doubled in response to longevity risk. However, to cope with market volatility, most advisors use dividend paying stocks.

Advisors don’t seem to be keeping up with the times when it comes to adjusting retirement portfolios to take into consideration today’s lower fixed income yields, according to a recent study by DPL Financial Partners.

The latest yearly research by the turnkey insurance management platform looks at retirement planning attitudes and practices, awareness of client retirement income concerns and priorities, and strategies to meet client income needs.

One issue the study reveals is that advisors are struggling with the long-term low- interest rate environment and still use “legacy” strategies, like ramping up fixed income in a portfolio as clients get closer or are in retirement. In a low interest rate world, other strategies might be more appropriate for some portfolios today, DPL states.

This year’s results are based on responses collected in May and June from 201 advisors, 90% of whom were RIAs with assets under management of $250 million or less.

The gallery above takes a look at the study’s findings.