Opportunities and Risks: 2 Retirement Lanes for Advisors to Manage


Finance professionals have to meet high expectations and cope with rapidly changing conditions, Steven Parrish says.

Retirement involves both opportunities and risks. It’s the job of financial advisors to help their clients navigate these two dynamics.

In the extensive experience of Steven Parrish, adjunct professor of advanced planning at the American College of Financial Services and co-director of the American College Center for Retirement Income, today’s financial advisors have lots of tools at their disposal to pursue this mission — but they also have to meet high expectations and cope with rapidly changing conditions.

Ultimately, advisors who are able to leverage the latest income planning research and product developments can deliver significant value to their clients, Parrish says, while those who fail to embrace emerging best practices are likely to fall behind.

Parrish makes this case during the third episode of ThinkAdvisor’s Ask the Retirement Expert podcast series. According to Parrish, it is essential for advisors to understand how key planning issues differ when working with pre-retirees versus retirees, and how longevity, portfolio and market risks interact over time to both the benefit and detriment of savers.

Snowbirding in Retirement

As Parrish explains, helping retirees create a sustainable income plan is of paramount importance in today’s advisory industry, and this can be accomplished by rethinking traditional rules of thumb like the 4% withdrawal rule in favor of more rigorous approaches, such as the “guardrails approach.”

Another emerging consideration is whether housing assets have been underappreciated and underused in the income planning process, and how the opportunity to snowbird in retirement can help retirees meet their financial and lifestyle goals.

As Parrish explains, snowbirding is a strategy and lifestyle available to Americans of far more modest means that one might think — many families own a small second home while others may buy an RV in retirement — and advisors who help their clients get this technique right from a tax-management perspective “will earn their loyalty for life.”

Diminished Capacity Issues

According to Parrish, it is very common for advisors and their clients, even as they build otherwise effective income plans, to ignore the risks presented by “future diminished capacity.” That is, many Americans will experience cognitive disease or general challenges associated with advanced age, and this means that executing their income plans can be a challenge.

To get ahead of the issue, Parrish recommends that advisors and clients should be having frank conversations and putting legal plans in place to ensure that clients can get the support they may need from trusted resources.

Pre-Retirement Considerations

In Parrish’s experience, advisors and their clients rightly view the income planning process as being more complex than the accumulation process. While that is true to some extent, there is also a tendency to view these two phases as being more distinct than they actually are.

For example, Parrish notes, pre-retirees have a lot of opportunity to engage in tax-management techniques that will do them a lot of good once they have actually retired. Roth conversions and tax-loss harvesting are two prime examples.

Role of Annuities

Parrish says he is glad to see a reinvigorated discussion about annuities, and he urges advisors to consider the role that such products can play both in the pre-retirement and retirement phases.

For pre-retirees, these products can support accumulation in some interesting ways, Parrish says, pointing to the example of registered index-linked annuities.

“Really they are part of the investment portfolio, and the draw is that they are tax-deferred, which is great pre-retirement,” he says.

During retirement, Parrish says, annuities have “a different set of equations going on.”

“To me, annuities are important as a source of that guaranteed income you can’t outlive,” Parrish says. “The discussion is more about single-premium immediate annuities and using that lifetime withdrawal benefit on deferred annuities.”

According to Parrish, advisors who have shunned annuities historically should take time to reconsider how the modern product set, complemented by today’s higher interest rates, may have changed the calculus.

Pictured: Steve Parrish


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