Changes in Retirement Investment Advice

According to a new report from the Alliance for Lifetime Income, about two-thirds of financial advisors are altering their retirement investment recommendations for clients. This shift appears to be driven by ongoing market volatility and economic uncertainty.

• Advisors are reevaluating their advice in light of concerns over inflation, Social Security, Medicare, and rising living costs.
• There is now a strong emphasis on considering exit strategies and assessing assets that may not be currently included in portfolios.

Market fluctuations and an uncertain economic landscape are changing how financial advisors guide their clients. With increased focus from the report by LIMRA, many professionals are adapting their strategies.

Nathan Sebesta, a Certified Financial Planner, noted, “With rising inflation, questions about Social Security and Medicare, and general cost-of-living concerns, we’ve had to adjust not just our conversations but the strategies we recommend.”

Financial advisors suggest that clients think about exit strategies and build cushions to handle volatility. Sebesta has advocated for phased retirement or part-time work to give clients more stability amid this uncertainty.

“In many cases, we help clients completely rethink their retirement,” he added.

He also emphasized the importance of discussing cash buffers and re-evaluating asset allocations to mitigate sequence risk, which can affect how withdrawals from retirement accounts may impact overall returns.

Sequence risk refers to the potential negative impact on an investor’s returns as they start withdrawing from their retirement accounts. This can play out differently depending on whether the market is up or down when withdrawals occur.

Though it often comes down to luck, financial advisors stress the need to be aware of these factors in retirement planning. Those relying solely on portfolios may find themselves particularly vulnerable during downturns.

Scott Bishop, another certified financial planner, mentions that there’s no universal approach to retirement savings given the unpredictable nature of the economy. Still, he recognizes the need for fresh perspectives in planning. He encourages clients to assess their essential spending needs alongside discretionary ones.

Bishop aims to establish a “safe bucket” for retirement that covers one to three years of income in cash or easily accessible liquid assets. This strategy aims to cushion against market fluctuations.

Furthermore, Sebesta has noticed a growing interest among clients in guaranteed income solutions, such as pensions, while others are considering tax-efficient strategies that capitalize on income-producing, tax-deferred accounts.

Bishop mentioned that his firm is exploring other financial avenues that align with clients’ retirement needs, such as focusing on private credit to potentially enhance yields beyond traditional bonds and diversifying into private real estate and equity.