A new survey released today finds that 82% of Registered Investment Advisors (RIAs) agree that clients are concerned about outliving their retirement savings, and 64% agree that clients worry about retiring on time. Despite this, the survey also suggests that many RIAs may not have a clear plan for protecting client portfolios as they approach retirement, and may be focusing more on accumulation than decumulation.
The 2022 RIA Protected Accumulation + Retirement Income Survey from RetireOne and Midland National Life Insurance Company found that nearly all financial advisors (92%) believe they have the tools to keep their clients happy. But do they? The joint survey of nearly 200 financial professionals shows only four in 10 respondents use income-planning software, while 85% use financial planning tools.
“It’s become evident that in times of turmoil, advisors need to offer clients protection for the retirement portfolios that they’ve been nurturing for years.”
RetireOne CEO David Stone
When it comes to principal protection, 41% still allocate to certificates of deposit, 60% use money market accounts, and 49% keep clients in cash. Despite inflation climbing toward 9% and Morningstar calling for a revision to the “4% Rule”—the commonly referred-to rule of thumb, RIAs still rank unprotected methods for generating retirement income ahead of lifetime income solutions.
“For 12 years markets performed extraordinarily well, and so did many advisors,” said David Stone, Co-Founder and CEO at RetireOne. “Still, with lingering volatility, advisors are searching for another way to best serve clients. While they’re hoping markets will come around quickly, it’s become evident that in times of turmoil, advisors need to offer clients protection for the retirement portfolios that they’ve been nurturing for years.”
As the Fed hikes interest rates, RetireOne argues that annuities have become a more appealing retirement income strategy, especially with a flurry of guaranteed lifetime income solutions entering the market as a result of the SECURE Act. Compared to RetireOne’s survey last year, more advisors say they would refer annuities to their clients should their needs be addressed by the features of a specific offering (65% in 2022 vs. 52% in 2021).
Nearly half of RIAs who are using annuities cite guaranteed lifetime income as the primary reason they refer them to clients. In a recent whitepaper penned in partnership with RetireOne, Michael Finke, PhD, CFP, outlines how longevity continues to improve for Americans, leaving the onus on advisors to ensure their clients don’t outlive their retirement savings. As new innovations such as contingent deferred annuities (CDAs) enter the market, Finke says establishing a fixed guaranteed income stream can provide portfolio income insurance to enable an advisors’ client to invest more aggressively.
“Portfolio income insurance allows a retiree to maintain a lifestyle free of the possibility that spending today could jeopardize their ability to live well later in retirement,” writes Finke.
The portfolio income insurance solution allows RIAs to wrap client brokerage accounts, IRAs or Roth IRAs with lifetime income protection to combat longevity and sequence-of-return risks, while enabling advisors to continue to oversee client assets as they enter retirement and begin the decumulation phase.
“Americans need help to create long-term income from savings,” said Rob TeKolste, President of Sammons Independent Annuity Group, a division of Midland National. “It’s time for RIAs to prioritize holistic advice that includes both strategies for retirement income planning as well as asset accumulation. While our survey shows that advisors are using more guaranteed income solutions, many are lagging. An advisor must respond to the needs of their clients in the face of economic headwinds.”
SEE ALSO:
• 3.3% Safe Withdrawal Rate is the New 4%: Morningstar
• Finke Explores Potential of Portfolio Income Insurance in New Whitepaper
• Inflation, Interest Rates Fuel Retirement Income Stream Worries