Responses to a current problem often create new problems. 
I fear that the way a lot of financial advisors have responded to the financial turmoil may turn out to be another example of that. Following are three recommended solutions.
One advisor response to the recent market upheaval has been to recommend more conservative portfolios for retirees. A survey of financial advisors that my firm did this year found that 72% always or often recommend that clients entering retirement shift to more conservative investments. That's up from 63% in 2007.
Similarly, 78% of advisors in 2009 said they suggest retirees reduce exposure to equities as they age. Two years ago, only 59% of advisors recommended that.
It is easy to understand the movement to more fixed investments: The recent market downturn has been extremely painful and has made many investors anxious. Thus, even though retirements are becoming longer and more expensive and even though the proportion of people who have not accumulated enough for financial security is growing, a number of advisors are recommending (or planning to recommend) portfolios having conservative investments.
This creates a foreseeable problem. Historically, conservative investments have produced lower returns than equities over the long term. Since retirement is, most often and hopefully, long term, those portfolios are likely to fall short of retirees' long-term goals and needs.
If retirees become even more conservative investors, they will need new strategies to help provide the financial security so important to them. Here are three ideas.
First, if retirement portfolios are likely to produce less income, it becomes more important to get more retirement support from financial products bought prior to retirement.
One way to do this is to design financial products that people need while working to provide more benefits when they are retired. This can be done by designing products that transform at or during retirement. How about a life insurance policy that starts providing lifetime monthly income at the insured's age 80, or a disability insurance policy that transforms to long term care insurance at a preferred rate at the insured's age 65 or retirement?
A second approach is to encourage people in their late 40s and early 50s to buy financial products they will carry through retirement. Buying at earlier ages reduces the cost of the coverage in retirement.
