PLANADVISER - Spring 2023 - 33

Viewpoints
The Long Goodbye
Advice for clients' retirement spend-down
I'VE SPENT MUCH of the past decade or
so trying to improve retirement security,
devoting a lot of time to thinking about withdrawals
for retirement. This is a challenge
we all share.
The job of a financial adviser, never easy,
has become tougher. Thanks to the miracle of
modern medicine, retirement is a longer and
more expensive part of life. Thanks to the, er,
" miracle " of modern financial services, making
what once were simpler and easier decisions
has become an exercise requiring the skills
of a Ph.D. in finance, a medical doctor and a
psychologist-and then there's the competition
from the industry's mega firms.
PLANADVISER readers are already well
versed in the basic rules of helping clients:
assessing their financial desires and then
considering diversification; their appetite for
risk; the mix of active and passive options;
fees; etc.
I'd like to focus on one of the harder parts:
advising about how to spend down in retirement.
This is a challenge because whatever
your clients spend is no longer under your
management. Nonetheless, it is arguably the
most important reason people need a financial
adviser; survey after survey finds that
fear of running out of money in retirement is
the single most widespread financial concern.
This means financial advisers have two
difficult tasks. First, they must give their
clients a conservative idea of how much lifetime
retirement income they can count on
receiving. There are obviously many calculators
available for this purpose, but there's
undeniably a tension between telling a client
that you're working to get them the best riskadjusted
return and noting that, to be safe,
they should count on something less.
One approach frequently offered but relatively
rarely accepted is to annuitize at retirement.
To be sure, many financial advisers are
reluctant to suggest annuitization that will
remove them from any involvement with their
client's assets. In practice, many clients are
skeptical of annuities too, for multiple reasons:
mistrust of insurance companies or insurance
salespeople, the irrevocability of the purchase,
and the fear that " something will come up "
that the monthly check can't cover.
An alternative is to consider a managed
payout arrangement: a monthly withdrawal
in an amount projected, but not guaranteed,
to last a client's lifetime, yet offering the flexibility
to withdraw more if something does
come up. This managed payout approach will
be the default arrangement in the MarylandSaves
automatic savings program I chair.
The second challenge is harder: Without
becoming " a salesman, " the thoughtful professional
should discuss the benefits and costs
of some insurance products. This is not an
argument that financial advisers should give
up their clients by converting everything to
a single-premium immediate annuity. There
are other forms of insurance that ought to
be considered in many more cases than they
currently are, specifically longevity insurance
and long-term care insurance.
Longevity insurance. Longevity annuities
provide a monthly payment beginning late
in life-typically at age 85-upon payment
of a single premium. Recent changes in tax
law allow purchases of qualified longevity
annuity contracts from tax-qualified plans
and individual retirement accounts without
creating taxable income. Purchase of a QLAC
reduces the otherwise required minimum
distributions that, under current law, must
begin no later than age 72. QLACs are offered
by multiple insurance companies.
Long-term care insurance. By some estimates,
more than two-thirds of adults will need
some form of long-term care in retirement,
yet less than one person in 10 has insurance
to cover it. As with other retirement-related
expenses,
these costs are better handled
by investing during a person's working life.
Further, premiums can be deductible, though
only above 7.5% of adjusted gross income.
None of this is easy, but professional financial
advisers can take on this broader form of
advice far more easily and effectively than
can their clients. And-ultimately-their
clients will be grateful that they did.
Hon. Joshua Gotbaum, a guest scholar at the Brookings Institution affiliated
with its Retirement Security Project, chairs the MarylandSaves program and is
a trustee of the Pension Reserve Trust of Puerto Rico. He directed the Pension
Benefit Guaranty Corporation. The above are his own views, he noted.
... there's
undeniably
a tension
between
telling a client
that you're
working to
get them
the best riskadjusted
return
and
noting that,
to be safe,
they should
count on
something
less.
Participants | Spring 2023 | planadviser.com 33
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PLANADVISER - Spring 2023

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