Retirement strategy success trending upward, still room for improvement

DENVER – The Financial Planning Association® (FPA®) today released the “2011 Financial Adviser Retirement Income Planning Experiences, Strategies, and Recommendations Study,” an annual survey that seeks to identify retirement planning strategies and their success. The 2011 study, conducted by FPA and sponsored by Thornburg Securities Corporation, reveals significant success in retirement strategies over the past year.

Research showed an increase of clients who did not make significant changes to their retirement plans or lifestyles since the 2010 study. Planners report that 76 percent of retired clients did not make significant changes to their employment plans or lifestyles in the past 12 months. They also report that 66 percent of their clients who plan to retire in the next five years did not make any significant changes. These are both increases from the 2010 study in which planners reported that 60 percent of clients in or near retirement did not make changes in the previous year.

Of the 595 planners surveyed, three-fourths frequently or always use systematic withdrawal,38 percent frequently or always use time-based segmentation, a third frequently or always use essential-versus-discretionary income approach and 23 percent frequently or always use a less formal strategy where clients mainly live on their pension or Social Security which may be supplemented periodically. Of these processes, research results show systematic withdrawal is the most effective in helping clients maintain retirement plans and lifestyle.

According to the study, planners always using the systematic withdrawal approach for generating sustainable retirement income were more likely to have less than five percent of their clients making a significant change. In fact, 33 percent of planners who always use systematic withdrawal had 96 percent or more of their retired clients make no significant changes to their employment status or lifestyle during retirement.

“The lifetime income methodologies that allow planners to be dynamic and nimble are gaining momentum in the practitioner community relative to those that are more static,” said Jonathan Guyton, CFP®, a retirement planning expert and leading author of the survey. “Not only does this fit our profession’s culture, which values relationships and process, a variety of empirical evidence on this subject demonstrates superior results using such approaches for clients.”

“The results of this year’s study are remarkable,” said Marvin W. Tuttle, Jr., CAE, FPA’s executive director and CEO. “The strong correlation between active planner involvement and client success shows the value in FPA’s client-first philosophy.”

“The FPA survey shows that financial planning strategies are improving, but we still have a lot to learn,” said Jack Gardner, CIMA®, president of Thornburg Securities Corporation. “As an industry, we have not given advisers the tools to efficiently implement retirement income planning across their book,” added Gardner. “Platforms are still built for accumulation; they’re not built out yet for the distribution phase.”

Although 78 percent of survey respondents said they select a retirement income strategy and use products to implement that strategy, some planners seek a single product to accomplish successful retirement income planning. The respondents suggested the following improvements for retirement planning products:

• Automated products—for example, a product that allows clients to automatically take income out of the fixed-income portion of the portfolio;
• More transparent and affordable annuities—Planners say they want more annuities with no fees, no commissions, and low expenses;
• More innovative LTCI/annuity products—Planners are looking for hybrids that offer enhanced payments for terminal illnesses and tax advantages typically associated with LTCI.

For more research findings, FPA members can download a free copy at www.FPAnet.org/Professionals.

Journalists: To obtain a copy of the research for reference, please send your request to Christine.Richardson@FPAnet.org.