A benefit of the growing interest in retirement income planning is the growth in sustainable distribution research.
Instead of relying on anecdotal experiences, advisors can review different studies, judge their methods and results, and then determine if and how the findings should influence their work with clients.
Securities America's study, Capturing the Income Distribution Opportunity, was first published in 2011 but the updates are still worth reading. Using relatively straightforward assumptions, the white paper back-tested three income strategies:
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systematic withdrawals,
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variable annuities with guaranteed minimum withdrawal benefits,
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and a time-segmented allocation model, also known as the bucket approach.
The study found that the time-segmented approach produced the highest sustainable withdrawals, but the statistics are just one facet of the findings, according to Zach Parker, the firm's first vice president of wealth management and product strategy.
"Even though you have a strategy that provides the highest withdrawal rate, you still have to focus on the client as an individual and their emotional capabilities to take on risk," he says. "And, so, those clients that were more emotional in nature and had certain needs and certain requirements from that perspective probably should consider some form of guaranteed income within their plan."
That realization helped shaped the NextPhase(™) Plan, the firm's current retirement income planning process. It's essentially a time-segmented model that includes six segments with an optional guaranteed lifetime income segment over a 25-year time horizon. Securities America has designed a fact-finding and planning process around NextPhase that encompasses four factors.
The first factor is guaranteed income, which comes right from the white paper, Parker explains. The firm believes that clients have a need for guaranteed income in certain situations so the advisors ask specific questions relating to this potential need.
