A paradigm shift is occurring in how bank investment program executives see retirement planning, according to Scott Stathis, managing director of Kehrer LIMRA. Stathis discussed with me some of the key findings of his retirement roundtable back in October.

The most exciting finding he said dates back to his retirement roundtable in October. But the message is clear that retirement planning is becoming a specialized discipline within leading edge bank brokerage programs.

But a key point that came out of this roundtable, according to Stathis, is that the industry is evolving to a point where asset allocation is less important in retirement planning than product allocation.

This concept originates with Moshe Milevsky, a professor of Finance at York University in Toronto, Canada, who is renown for his research and thinking about retirement income and longevity. (Check out his study)

Milevsky says: “While a diversified portfolio of stocks and bonds will forever be important regardless of age and lifecycle stage, the product allocation — or combination of actual products and instruments in which you keep your asset allocation — will have an even greater impact on the amount of retirement income you receive and the sustainability of that income throughout your lifetime.”

"One should insure against adverse outcomes using a product allocation strategy [as a] hedge against these retirement risks [longevity, inflation, sequence of returns] in the context of one’s retirement income goals.”

These retirement products can be broken down into four categories:

1. Systematic Withdrawal Income Plans (SWIPs), which use traditional investments such as stocks and bonds, mutual funds and separately managed accounts to yield income.

2. Variable Annuities with guaranteed living benefits such as minimum withdrawal riders and guaranteed minimum income benefits

3. Income annuities such as lifetime such as single-premium immediate annuities and deferred income annuities

4. Life insurance that offers some kind of wealth transfer and covers wealth transfer. This category would include some form of long term care insurance, including increasing popular hybrid life insurance/ltc policies.

At least three of these are required to address longevity, sequence of return and inflation risks. For example, SWIPs only address inflation risk, but adding in VAs with guaranteed living benefits protects against sequence of return risk and a little bit against longevity risk. Throwing income annuities into the mix covers longevity risk much better. Some combination of all three could make the difference between clients outliving their assets or not. Life insurance can meet client desires to leave a legacy and address health risk.




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