An excerpt from the 2009 Advisers' Attitudes and Perceptions on the Retirement Income Distribution Market study
Many planners use a variety of methods when evaluating the likely success of a retirement income plan, according to FPA's 2009 Financial Advisers' Attitudes and Perceptions About the Retirement Income Distribution Market1, conducted by The Diversified Services Group and sponsored by Nationwide® Institute of Retirement IncomeSM.
Advisers were asked how they go about evaluating the likelihood that they will achieve client income and risk objectives. For each of a series of listed options, they were asked to specify how often they use it, based on a five-point scale ranging from never to always. Defining the top two points of the scale as "often used to evaluate" and the bottom two points as "seldom used," the most often used method is Monte Carlo analysis, followed next by using the accepted practice of a 4 percent or less withdrawal rate.
There is a tendency among advisers to use the more sophisticated method, that is, Monte Carlo simulations, although a substantial percentage of respondents frequently use simpler approaches as well. There is certainly some overlap in use, which suggests that advisers may use more than one method for a client, or perhaps use different methods for different clients. This also indicates that today's advisers are knowledgeable of the variety of options available, and to some extent, can pick and choose based on the method they deem most appropriate for the situation.
Only a very small percentage of advisers make use of a home office review for this purpose, and those who answered that they used other means for evaluating retirement income plans described a broad range of methods including:
- Continuous monitoring and/or adjustment of withdrawal rates
- Scenario analyses customized for individual clients
- Matching portfolio income with expenses
- Using an ongoing cash flow analysis
For more results from the research, download the 2009 Retirement Income Distribution Supplement and the Q4, 2009 issue of Research Spotlight.
Endnote
- To achieve a statistically significant sample size, 15,000 members of FPA were selected at random and invited to participate in this online survey. DSG fielded the survey during August 2009. A total of 460 FPA members of the 15,000 sample participated. The aggregate profile of these participants is representative of the FPA membership with a plus/minus 5 percent margin of error and is comparable to the prior years' samples and participant numbers.
