[A thought-provoking white paper, “An Advisor’s Guide to Protecting Retirement Income,” was recently published to motivate financial advisors to rethink and reposition their retirement services with the goal of better helping their clients financially prepare for and live through retirement. By going beyond the traditional accumulation of retirement assets and income-generating investments, the white paper questions whether advisors will need to play a bigger role for their clients by providing a more ongoing, proactive management of retirement income sources. In particular, they should consider investigating for themselves a more dynamic glidepath approach to their retirement planning offering.
The stakes are great as every day in the U.S. 10,000 people turn 65 leading to 88.5 million Americans over the age of 65 by 2050. With increasing longevity expectations by retirees — life expectancy at 65 went from 79 years in 1940 to 85 years today – one in three workers today are not confident they will have enough money to be comfortable in retirement. Advisors will have to show strong leadership and personalized support to better address those concerns and needs.
To better understand the thinking and results behind the white paper, we reached out and talked with one of the authors, Jon Robinson, who is CEO and co-founder of Blueprint Investment Partners and an Institute member. In addition to asset management services, the firm provides its advisor clients with practice management solutions, including tools and coaching to help advisors implement an optimal business model and strategies to compete in our industry’s new operating environment of accelerating change.]
Bill Hortz: What was your motivation in writing this white paper about how advisors can protect retirement income?
Jon Robinson: In my opinion, too many decisions that impact an investor’s portfolio are made based on criteria that essentially boil down to tradition, gut feelings, or bravado. At Blueprint, we think that kind of methodology gambles with an investor’s financial future. Instead, we make decisions based on hard data because it is the one thing that has the best chance to cut through emotional biases.
Brandon Langley, our president and co-founder, and I wanted to take the same data-backed approach to this topic of protecting retirement income.
While the 60/40 portfolio has been the bread-and-butter strategy that helped millions of investors retire comfortably in the past, we have been sounding an alarm about the structural risks of this approach for years. The warning signs surrounding what we call “the 60/40 problem” are more dire in 2022, given the potential end of the post-Global Financial Crisis secular bull market in equities, the prospect of the first sustained rising U.S. interest rate environment in more than 40 years, and highest inflation level in four decades.
Therefore, we sought to test an alternative to the traditional approach of using a 60/40 portfolio and then stepping down equity exposure as a retiree ages. We wanted to know if an alternative approach that used a more dynamic glidepath warrants further attention from financial advisors.
Hortz: What are some of your concerns on the historically preferred methods of addressing retirement income?
Robinson: Advisors usually are quick to point to tools like fixed income investments, annuities, target-date funds, and the bucket approach as instruments for providing and protecting retirement income. A drawback associated with each of these is that they are not very dynamic. This puts them at odds with the market, which is characterized by constant change.
Target-date funds, balanced portfolios, and even the bucket system are somewhat adaptive in that they adjust as an investor gets closer to and progresses through retirement, but their modifications are driven by a human factor (age), not the market environment.
The traditional glidepath can work well if a retiree is lucky enough to experience a strong equity market early in retirement, see rising fixed income yields in later years, and have steady rates of inflation throughout. Absent those conditions, the outcomes can range from lackluster to catastrophic.