Retirement income planning isn't about making clients money; it's about making their money last. This is the most fundamental change in thinking that investment advisors and financial planners must understand as clients enter the income phase of retirement. Like it or not, relying solely on asset allocation and bucket strategies isn't the answer for most. And yes, for many clients needing a guaranteed source of income, annuities can play a role. (A certain blogger will never forget his incredulous reaction when the concept of a SPIA was first explained. The insurance company gets the money and the client can't get it back!)
But relying solely on annuities isn't the answer. (That same blogger will never forget the incredulous reaction of an agent who asked in wonderment why anyone would choose a mutual fund over a variable annuity for their IRA rollover. Mutual funds don't have a death benefit!) And immediate annuities aren't a panacea for everyone with a retirement income need. Like it or not, clients need a growth and income component in their portfolios free from M&E and surrender charges. Clearly, the answer lies somewhere in between.
Income, not age, will trigger retirement for most. But in spite of the focus on income planning, many advisors and Boomers remain at a loss. That's because transitioning a nest egg into an income stream is one of the least intuitive, but most important planning steps to get right. Yet this is a generation that's been raised on margin, Magellan, and managed accounts. In addition, income solutions (code for annuities) are complex and in many cases advisor / client objectives are not aligned (code for "annuicide").
Adding to the challenge is the fact that retirement income planning has no clearly defined process or end point. Accumulation planning has relative structure in the form of Modern Portfolio Theory and all those Greek letters. Then there's salary deferral, contribution limits and a point in time when clients will at least stop working full time. And the money making side of the equation also has iconic figures like Peter Lynch and Warren Buffet, not to mention the fictional Gordon Gekko. It's hard to imagine a Hollywood blockbuster based on an actuary or bond fund manager called Wall Street: Duration Never Sleeps. The same wouldn't be said of the audience.
Income planning is like modern art; abstract, open to interpretation and with no clearly defined end-point (Modern Picasso Theory?). But what's especially troublesome is that most advisors are significantly behind the curve when it comes to the basics of Social Security benefits, let alone the nuances required of quality income planning. Bull markets allowed many advisors (and "self-service" investors) to get away with ham-handed, dart board accumulation strategies resulting in unprecedented hubris and BMW sales. (The entourage of wholesalers, branch, regional and home office management also enjoyed the ride.) But that won't work given the compressed time horizons faced by retirees stretching for yield in a low interest rate environment.
It's essential that advisors and agents play the role of docent by helping clients make sense of what they are looking at as they gaze at the distribution phase of retirement. Those same advisors and agents must open their minds and recognize there's much to learn before doing so. Perhaps the first step is heading down to the local art museum.
No comments:
Post a Comment