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Monday, April 15, 2024

How Advisors Construct Retirement Earnings Portfolios, in 7 Charts


Retirement is the most costly “buy” most American households will ever make, with a price ticket for a lot of coming in at over $1 million. In terms of constructing environment friendly portfolios for retirees, there are a selection of various concerns and views amongst monetary advisors. 

To raised perceive the advisor view, Prudential’s Advertising and marketing Insights & Analytics group fielded a survey of 13 questions amongst 198 monetary advisors in December 2023. 

Our survey signifies monetary advisors, particularly those that be aware experience in retirement earnings planning, are clearly and centered on constructing (and utilizing) portfolios particularly designed for retirees. These portfolios typically leverage totally different asset courses than these utilized in extra accumulation-focused methods.

These outcomes usually recommend advisors more and more ought to pay attention to the frameworks that exist to develop environment friendly retirement earnings portfolios or accomplice with asset managers which have particular experience on this area. Click on on the charts beneath to enlarge.

1. Monetary advisors use particular portfolios for retirees

One survey query requested: “Do you construct, or use, a separate set of portfolios particularly focused in direction of retiree shoppers?” Eighty p.c of respondents stated sure.

Use of retiree-specific portfolios was greater amongst those that have been considerably or very educated about retirement earnings planning. In distinction, solely 58% of advisors who stated they weren’t very educated about retirement earnings planning used retiree-specific portfolios.

This implies as experience in retirement earnings planning will increase, these numbers may additional enhance.

Percentage of Financial Advisors Using Specific Portfolios Targeted for Retirees

2. Retired shoppers want to stay off portfolio earnings. 

One other query requested:  “… Roughly what p.c of your retiree shoppers want residing off portfolio earnings?” Whereas there’s clearly a variety of responses, general it seems about 50% of retiree shoppers want to stay off of earnings. 

This implies advisors must be able to constructing portfolios which have an earnings focus. These portfolios will be very totally different than the extra conventional perspective utilizing imply variance optimization (MVO), which focuses on complete return (a mixture of earnings return and value return).

Percentage of Retiree Clients Who Prefer Living Off Portfolio Income

3. Views on utilizing asset courses in retirement portfolios differ notably. 

The query requested: “Ignoring threat tolerance, what function do you suppose the next asset courses ought to play in portfolios for retirees (versus non-retirees)?”

The graphic consists of the share of respondents who thought allocations must be considerably greater or a lot greater.  Monetary advisor respondents have been most curious about allocation to long-term bonds, U.S. large-cap equities, and Treasury inflation-protected securities. 

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