New Research for Financial Advisors: Protecting Retirement Income

The Co-Founders of Blueprint Investment Partners, Jon Robinson and Brandon Langley, have published “An Advisor’s Guide to Protecting Retirement Income” to help financial advisors think about how to increase the odds of a portfolio sustaining clients throughout retirement. The Guide considers what’s at stake for investors who are in or nearing retirement, addresses the primary considerations for financial advisors and their clients, reviews the historically preferred methods for protecting requirement income, and analyzes data that compares the performance of a traditional glidepath portfolio to a dynamic glidepath alternative.

“Advisors 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. But few advisors factor in how to manage the glidepath itself,” says Robinson. “The traditional glidepath steps down in one direction, from more aggressive to more conservative, which 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 ideal conditions, the outcomes can range from lackluster to catastrophic. Therefore, Brandon and I wanted to test whether an alternative approach that uses a dynamic glidepath strategy warrants further attention from advisors.”

The dynamic glidepath approach researched in the Guide adjusted a retiree’s portfolio based on what was happening in the market at any particular time irrespective of the investor’s age or retirement year. The strategy dynamically adjusted portfolio allocations with the goal of continually taking advantage of strong-performing asset classes while also minimizing exposure to those showing weakness. This created a portfolio that looked dramatically different depending on the market conditions at the time of and throughout retirement.

To compare the dynamic approach to the traditional glidepath, Robinson and Langley:

• Analyzed data that compared the performance of each approach since 2000
• Conducted a longer-term stress test of the two portfolios by reviewing data about the best and worst times to retire since 1928

We believe the data showed that the dynamic glidepath approach improved the odds of success thus far in the 21st century, 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.

“The need for a more modern approach to retirement income has arguably never been greater than right now,” adds Langley. “We’re seeing the confluence of the potential end of the post-Global Financial Crisis bull market in equities, prospect of the first sustained rising U.S. interest rate environment in more than 40 years, and highest inflation level in four decades. Just one of these is usually enough to cause concern for an investor, but the prospect of all three at once is potentially catastrophic for a retiree.”

In addition to the Guide, Robinson and Langley compiled a set of companion materials for financial advisors. The Retirement Income Materials for Advisors Package includes education pieces to help advisors have conversation with their clients about the importance of protecting retirement income and strategies for achieving that objective.