Hortz: What are some of the primary considerations you think advisors should integrate into their retirement planning process with their clients?
Robinson: There are the obvious considerations like withdrawal rate, sequence of returns risk, inflation, life expectancy, and suitability. Most of these are already well-embedded in how advisors discuss retirement planning and retirement income with their clients.
I think suitability is worth talking more about because it often does not get the attention I think it deserves.
We all know that advisors may only provide guidance that is appropriate for a client based on their unique circumstances. However, there is plenty of grey area when it comes to defining suitability, and some advisors take a more robust approach than others.
Most traditional asset management and financial planning involves what we call “one-dimensional suitability” because it only uses quantitative factors to access an investor’s tolerance for risk. This approach does not consider how likely an investor is to stick with a plan or investment over time, even if on paper the risk profiles are a match.
We think a dynamic glidepath approach can offer “two-dimensional suitability” because it can account for both qualitative factors that often keep clients on a straighter path toward their long-term goals. Qualitatively, clients are more likely to stay anchored to the plan when their portfolio behaves in a way they can “stomach” in good times and bad. For example, a dynamic glidepath’s plan for limiting equity exposure during bear markets may be likelier to “sit well” with new retirees than watching account value dwindle due to the 60% equity allocation of the traditional approach.
Hortz: What other areas did your whitepaper explore, and how would you summarize your findings?
Robinson: Our research compared the traditional and dynamic glidepath in several ways. We looked at performance since 2000 to consider a practical application for someone who would have retired 22 years ago. This provided sufficient data for us to draw conclusions, in our opinion, but we also wanted to further test the potential value of a dynamic glidepath approach by analyzing a longer-range view.
Therefore, we looked at the best and worst historical times to retire since 1928. We thought it was worthwhile to present the longer-range data because it further stress tested the two glidepath approaches and accounted for flexibility in assumptions about retirement age, life expectancy, and legacy planning.
We believe the data showed that the dynamic glidepath approach improved the odds of success since 2000, which has included two prolonged bear markets along with multiple favorable periods. Even during the more extended timeline since 1928, the strategy held up well during extreme conditions.
But advisors do not have to take my word for it. We invite them to download “An Advisor’s Guide to Downside Protection” and review the data for themselves. We also welcome discussions, and even challenges, about our findings. Retirement income is an important topic that I cannot imagine going away anytime soon. Having conversations and testing new ideas with data is time well spent, in my view.
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