Personalized Advisory Services are Essential to Navigating the Complexities of Retirement
January 12, 2022 — Boston
Managed account providers are well positioned to help participants make prudent, informed decisions related to decumulation
Retirement investors consider retirement income planning (57%) among the most important services offered by advisors, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
For many, concerns regarding decumulation and income planning are surfacing because of rising healthcare expenses—45% of retirees consistently cite healthcare costs as their top stressor. Expenses such as long-term care are significant and can vary substantially depending on the level of service offered. “The importance of planning for healthcare costs in retirement cannot be understated and advisors, both in plan and out of plan, should account for medical expenses within the holistic, long-term financial strategies they construct for their clients,” says Shawn, O’Brien, senior analyst.
A full 40% of retirees also express concerns of outliving retirement assets, prompting some plan fiduciaries to take a holistic look at their investment lineup and solutions to hedge against longevity risk. As plan sponsors continue to favor defined contribution (DC) plans over defined benefit (DB) plans, ownership of longevity risk has gradually shifted from the employer to the participant. “Retirement savers will increasingly assume the risk of outliving their income producing assets in retirement,” says O’Brien. “Future retiree cohorts, who are less likely to have accrued DB plan benefits, are more likely to benefit from the longevity hedging benefits of an annuity allocation,” he adds. Increased industry attention has been paid to annuity products with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. As broader discussions of retirement income in the DC market occurs, the benefits these products provide may offer a viable solution for retirement investors.
Cerulli suggests advisors in a managed account are well poised to help participants navigate decisions related to annuitization and maintains in-plan annuities are best implemented as a component of a professionally managed solution, such as a target-date fund or managed account, rather than as a standalone option on a plan’s core menu. “While incorporating annuitization options within target-date funds can potentially make these products more effective retirement income solutions, annuitization decisions are decidedly complex and should take into account the investor’s risk tolerance, liquidity requirements, and investable asset balance, among other factors,” says O’ Brien.
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