Page 22 - Investment Advisor December 2022/January 2023

RETIREMENT & ANNUITY UPDATES

As Jones points out, real yields are “And, while it appears as both the tors should be seriously considering the
high as well — the highest since 2009 — rational and optimal choice today, it was, opportunity to lock in a relatively high-
as measured relative to inflation expec- in fact, the suboptimal selection from income stream for much longer, rather
tations. “You can build a portfolio of both a total return perspective and on a than focusing only on the short end of
high-quality bonds (Treasurys, invest- yield basis,” McAllister warns. the yield curve. “Cash flow is king,” he
ment grade corporates and municipal Like Jones, McAllister says inves- says, “and the longer it flows, the better.”
bonds) generating yields of 6% with
duration in the 5- to 7-year range,” she
been having to rely on equities or other Ever-Wealthier DC Plan Investors
notes. “That means investors who have
riskier assets don’t have to reach for
yield and take that much credit risk.” Say ‘Show Me the Income!’
Given the potentially recessionary
environment, Jones is feeling “much more nvesco recently published its annual ings to be their largest source of retire-
cautious” on credit risk, especially within Ianalysis of the U.S. defined con- ment income — surpassing Social
higher yielding bonds. These bonds tend tribution retirement planning system, Security, personal savings and other
to be highly correlated with equities, she giving this year’s report the telling investments, Jenkins says. However,
explains, and the risk of default rises dur- title: “Show Me the Income,” which only a small portion of those employees
ing an economic downturn. was released on Oct. 19. The research are confident in their ability to gener-
“Some investors will have unrealized stands out for blending both a qualita- ate a retirement income strategy on
losses in bonds or bond funds,” Jones adds. tive and quantitative approach, syn- their own.
“That may mean harvesting a tax loss and thesizing surveys of large groups of The survey results show that almost
reinvesting or just holding to maturity. It plan participants and plan sponsors 70% of employee respondents are wor-
depends on the individual situation.” with focus group work and in-depth ried about running out of money in
Overall, Jones and her colleagues at interviews with plan consultants and retirement. Jenkins says this stat shows
Schwab think the risk of recession is high financial advisors. how vital it is that employers, retire-
and rising, and that fact will likely weigh Speaking about the results of the ment plan service providers and the
on risk assets. “However, the upside is 2022 analysis, Greg Jenkins, Invesco’s advisory community collaborate to help
that we look for the Fed to ease rates in head of institutional defined contribu- them confront and overcome that fear.
late 2023, which should mean that bonds tion, emphasized the lack of confidence “We have to help them bridge the gap
generate potential capital gains as well many retirement-focused investors with retirement income options and
as current income,” Jones says. are feeling today. Their concerns, he education,” Jenkins says.
explains, stem only in part from the cur- The report’s publication, with its
DON’T INVEST ‘TOO MUCH’ rent market volatility and fears about an emphasis on income planning topics,
In a new blog post published on his impending recession. comes at a time when the broader DC
firm’s website, Duane McAllister, a man- Simply put, many Americans with plan industry is taking steps to deliver
aging director and senior portfolio man- sizable and growing retirement plan bal- more annuity-style income insurance
ager at Baird Asset Management, echoes ances feel well served overall by their products. For example, Fidelity, the big-
many of Jones’ sentiments about emerg- employers and the DC plans they offer, gest DC plan recordkeeper, is develop-
ing opportunities. Like Jones, he warns but they also feel an acute lack of sup- ing an annuity platform for 401(k) assets
that the appeal of short-term rates could port in key areas, especially with respect that is expected to launch in 2023, and
cause some people to invest “too much, to retirement income planning. DC plan other major recordkeepers are expected
too short and to stay too long at this investors, a sizable proportion of whom to follow suit.
short maturity free-lunch counter.” represent future wealth management In such an environment, advisors
According to McAllister, the per- clients, also want help understanding foresee more qualified money stay-
ceived free lunch of receiving more the current moment in the markets and ing “in-plan” as recordkeepers provide
reward in the form of higher yields for what their own unique financial future greater access to institutionally priced
less interest rate risk by staying short holds in store. annuities, potentially impacting the
was as tempting in each of the previous The survey results reveal that most pace of rollovers in turn. Sources say
economic cycles as it is now. employees are relying on 401(k) sav- wealth managers must step up their

20 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com