Investors put a premium on different services offered by
their advisors, depending on their requirements.
For 57% of retirement investors, retirement income planning
is among the most important services they want from their advisors, according
to a report in the January issue of Cerulli Edge.
Concerns about decumulation and income planning are emerging
because of rising health care expenses, Cerulli research found. Forty-five
percent of retirees in the study consistently cite these costs as the top
source of stress.
Expenses such as long-term care are significant and can vary
substantially depending on the level of service offered, Cerulli said.
“The importance of planning for health care 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,” Shawn O’Brien, a Cerulli senior
analyst, said in a statement.
Forty percent of retirees also worried about outliving
retirement assets, prompting some plan fiduciaries to take a holistic look at
their investment lineup and solutions to hedge against longevity risk,
according to the report.
As plan sponsors continue to favor defined contribution
plans over defined benefit ones, 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,” O’Brien said. “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.”
The report noted that with the passage of the Setting Every
Community Up for Retirement Enhancement Act in 2019, the industry has paid more
attention to annuity products. As broader discussions of retirement income in
the DC plan market occurs, the benefits these products provide may offer a
viable solution for retirement investors, it said.
Cerulli said advisors in a managed account are well
positioned to help participants navigate decisions related to annuitization.
The firm maintains that 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 stand-alone 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,” O’Brien said.
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