Why personalized counseling is essential for retirees

As plan sponsors consider design changes to make their plans more effective as disbursement vehicles, a new article from Cerulli argues that there is no one-size-fits-all solution and that Managed Account Advisors are in the right place. to help.

Instead, solving the disbursement problem often requires a personalized experience that includes developing a comprehensive financial plan and an investment and exit strategy designed to meet unique expense requirements and long-term goals. retirement investors, ”says the company in its latest Cerulli. Edge — US Asset and Wealth Management Edition.

And with retirement investors who rate retirement income planning (57%) as one of the most important services offered by advisors, managed account providers are well positioned to help plan members “make prudent decisions.” and enlightened “in terms of counting, says the document.

Holistic strategies

For many, concerns about disbursement and income planning are surfacing due to rising healthcare spending, as 45% of retirees consistently cite healthcare spending as their top stressor, Cerulli notes. In addition, expenses such as long-term care are significant and can vary widely depending on the level of service offered.

“The importance of planning for health care costs in retirement cannot be understated and advisers, both in and out of plan, need to consider medical expenses as part of holistic financial strategies at hand. long term that they develop for their clients, ”says Shawn O ‘Brien, senior analyst at Cerulli.

A good 40% of retirees also express concerns about the depletion of retirement assets, prompting some plan trustees to take a holistic look at their range of investments and solutions to protect against longevity risk.

As such, providers can improve the value proposition of their retirement income and planning solutions by offering advice that goes beyond traditional portfolio management, such as when to apply for Social Security, how and when. how to withdraw money from various investment accounts during retirement, and how to plan and save for future health care costs. Cerulli says these are inherently personal challenges and best approached in the context of holistic and comprehensive retirement planning.

Tax-efficient withdrawal strategies

Advisors, from digital advisory platforms to traditional wealth managers, can deliver significant value to their retiree clients by helping them develop tax-efficient investment and withdrawal strategies. And while it’s important to make sure customers meet their Minimum Required Distributions (RMDs), that should only be one facet of a tax-efficient exit strategy, the document says.

“More sophisticated retirement income solutions take into account a myriad of factors such as the annual spending needs of retirees, Social Security income, federal and state tax brackets, and any intergenerational investment goals (i.e. ‘that is, do they wish to bequeath assets?) to develop an exit strategy that effectively defers taxes and minimizes tax liability for the investor,’ the document explains.

Yet while many retirement income advisers and solutions, such as managed account programs, offer advice related to Social Security, tax-efficient withdrawals, and healthcare spending, Cerulli suggests that the effectiveness of these features apparently varies from vendor to vendor.

Lifetime Income Solutions

Regarding disbursement strategies, Cerulli notes that with the passage of the SECURE law in 2019, increased industry attention has been paid to life income products. And as broader discussions of retirement income in the CD market take place, the benefits that these products offer may offer a viable solution for retirement investors, the paper notes.

“Retirement savers will increasingly bear the risk of outlining their income-producing assets in retirement,” says O’Brien. “Future cohorts of retirees, who are less likely to have accrued DB plan benefits, are more likely to receive the longevity coverage benefits of an annuity allowance,” he adds.

As such, Cerulli suggests that advisors in a managed account are in a good position to help participants make annuity-related decisions and maintains that annuities in the plan are best implemented as a component of an annuity. Professionally managed solution, such as a target date fund or managed account, rather than as a stand-alone option in a plan’s main menu.

“While incorporating annuity options into target date funds has the potential to make these products more effective retirement income solutions, annuity decisions are decidedly complex and must take risk tolerance into account. investor, cash flow requirements, and balance of investable assets, among other factors, ”says O’Brien.

At the same time, however, some archivists note that portability remains a concern when it comes to providing an annuity in the plan. Providers and trustees looking to offer an annuity into the plan, whether through their TDF or managed account offering, should consider engaging with a middleware vendor who can help track and reconcile annuity contracts. between the participant, the archivist and the insurer, advises Cerulli.

Additionally, for many retired investors, annuitizing a portion of their retirement savings may not be in their best interest, the document points out. According to Cerulli, a managed account provider explained that in some cases participants do not use their 401 (k) for retirement income at all, as some are their 401 (k) for a bequest or consider it as a fund for rainy days. . “A big reason is that a good part of these participants have some kind of pension and even if this pension only gives them ten or twenty thousand a year, which, added to their social security income, is important to cover their basic spending needs, ”the vendor said.

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