Boomers may have thought it difficult to save for retirement and pick the right investments, but even tougher financial decisions lie ahead. In retirement, or the decumulation phase, their money needs to last for the rest of their lives. They will be faced with a number of financial decisions, including:

• When to start taking Social Security benefits.
• When and in what order to tap retirement assets.
• How long to maintain health and long-term care coverage.
• Should other income producing investments be considered before systematically liquidating the retirement portfolio.

The stakes for these decisions are higher than those made in the accumulation phase. After all, market fluctuations and investment risks can be smoothed over time. During decumulation, however, there is less room for error than in the accumulation phase. 

There are no easy answers to the above questions or any of the other financial questions retirees’ face. Each retiree’s situation is unique and the totality of their circumstances must be considered before recommendations can be made. The puzzle is complicated by the fact that many clients hold multiple types of accounts including taxable, tax-deferred and tax-free.

With the rise of the robo-advisor movement, advisors must find every possible way to articulate and quantify their value proposition. In a recent article in Financial Advisor Magazine, Eric Rasmussen shares insights from advisors who are feeling the pressure from the onslaught of online wealth management systems that offer a way for investors to manage their investments with software rather than with a financial advisor. Financial advisors need to put themselves front and center, and demonstrate their value. An emphasis on retirement income planning is an easy way to do so.  According to a recent study, advisors who implement informed withdrawal order strategies can minimize the total taxes paid over the course of their clients’ retirement, thereby increasing their clients’ wealth and the longevity of their portfolios. Research such as that discussed in Vanguard’s recent article titled “Putting a Value on Your Value” (March 2014), shows that spending from the portfolio in a tax efficient manner can add up to 70 basis points of average annualized value without any additional risk.

Many boomers are now coming to realize that the investments they previously expected would provide income throughout retirement might fall short. Traditional income-producing investments may lag behind inflation and may not meet unforeseen rising expenses. Retirees who relied upon such investments may be left scratching their heads saying, “What now?”

Advisors who can answer the “What now” question by presenting strategies that the client did not know of or previously dismissed will demonstrate their value. For example, retirees who have relied upon conventional wisdom in retirement asset allocation may now be open to other income strategies. Other strategies may include assets that cannot be classified in the traditional three investment classes: stock, bonds, cash or cash equivalents. For example, real estate investment trusts (REITs) can provide income during the decumulation phase and have the potential for capital appreciation. We have found that these types of investments are less affected by economic downturns and change in credit and market risk environments …. like the one we are in today, and can help mitigate risk in retirement portfolios while also providing the opportunity for capital gains. Building a decumulation strategy that coordinates income and expenses will help alleviate fears of retirees outliving their money.

Millions of baby boomers will need guidance to address the new investment risks they face in retirement and develop an income strategy that is right for them.  An advisor can help his or her clients explore the suitable options. Whether traditional or alternative, no single investment or asset class is the answer. A full range of both traditional and alternative strategies should be considered to complement an otherwise well balanced, fully diversified portfolio and help generate income throughout retirement.

Thomas Goodson, ChFC, CLU, CASL, is a wealth manager with AmeriFlex Financial Services in Santa Barbara, Calif.