In direct opposition to the advice given from PIMCO’s Bill Gross this week, BlackRock Inc.’s Quintin Price is advising older clients to hold more equities as they age. This advice is based on the new reality that people are living longer.
The troika of factors include the need for income, the need to preserve buying power, and the need to beat inflation. This is a new age in retirement planning and your clients need you to bring them into it with more customized, proactively monitored investment strategies.
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The advice traditionally offered to switch entirely from accumulation to distribution during retirement years is faulty. People now face 20 to 30 years of retirement life. Just two generations ago, expected retirement years fell into the 10 to 15 year time span.
With double the amount of time spent in retirement as well as the more active nature of retirement life in today’s world, cutting off growth can be a mistake. Investors are being forced to find new ways to invest during their retirements.
Investment strategies during retirement need to be more proactive and benchmarking investment strategies in light of client needs is becoming ever more important during those years.
Providing income has become quite a challenge with interest rates hovering near zero.
Higher income is offered in investment instruments and securities with higher risk. Many retirees grab these higher rates without being fully aware of the added risk they are taking.
The issue in retirement is that investors do not have time on their side in making up for an investment mistake. So the need to balance income needs with continued growth within a reasonable risk management program becomes imperative.
To put some numbers on the longevity issue, the number of people in Europe who are over age 65 will increase to 19% in 2020. Japan’s ratio of those older than 65 is already at 23.9% of its population. The global life expectancy in 1950 was 48 years. 2010 saw that number rise to 70 years old .
The threat of inflation is where Price agrees with Gross. But in order to preserve buying power during retirement years, investors will need to invest in equities. High dividend paying equities can help to balance the need for income with the need for growth.
It all comes down to the fact that the traditional way of planning for retirement is not likely to work. Investors need you to do a thorough analysis of their particular situation to help them identify their goals, determine how achievable those goals really are, and design an investment strategy that will offer them the income they need with enough growth to keep them from running out of money and also to preserve buying power
This is a much more complex picture than investors are likely to realize on their own.