Sometimes, running a portfolio through the gauntlet of conventional wisdom and classic software does a disfavor to clients.
Money might be left on the table that could have and should have served the client in the future.
Instead, when it comes to retirement, some advisers along with research firms such as Morningstar and mutual fund giant Vanguard are now following a strategy of strategic withdrawals across multiple retirement accounts that can make retirement assets last longer.
Bill Meyer, founder and managing principal of both Retiree Inc. in Leawood, Kan., and Social Security Solutions, says that drawing down assets more strategically can make those assets last seven or eight years longer.
Social Security alone can make money last two to 10 years longer, he says.
Meyer recommends that advisers check out IncomeSolver.com, which contains software that incorporates detailed tax analysis and allows advisers to create specific retirement withdrawal rates.
Morningstar and Vanguard have similar research withdrawal referencing points across multiple retiree accounts, which can make retiree clients’ income last longer.
Vanguard’s is about 3% a year.
Vanguard advocates a “dynamic spending approach,” according to Colleen Jaconetti, senior investment analyst in the firm’s investment strategy group.
“We calculate initial spending as a percent of a client’s portfolio at retirement and each year thereafter apply a ceiling and floor to come up with a spending amount,” she says.
“If the market return is above the ceiling amount, we limit the increase in spending up to the ceiling amount. The excess is reinvested in the client’s portfolio,” Jaconetti says.
“If the return on the portfolio causes spending to fall below the ceiling, the investor can then spend the floor amount,” she says.
David Blanchett, head of retirement research in Morningstar’s Investment Management Group, recommends that advisers use financial planning techniques and work with retired clients on withdrawal strategies, such as minimizing taxes, making correct projections, as well as asset allocation and location.
“These are the basic rules that planners should follow with respect to clients’ activities in retirement. Exceptions along the way are inevitable, and planners should understand and make appropriate changes with clients,” Blanchett says.
Advisers should make sure that clients are disciplined and perform this exercise year after year, he says.
“It’s like rebalancing a portfolio. You want to ensure that the portfolio is consistent with their goals and preferences, as well as with target asset allocation,” Blanchett says.
This is part of a 30-30 series on preparing for retirement.