Successful planning needs to emphasize lifetime income

Even when we are thinking about retirement income, we often aren't equipped to tackle the thorniest questions

Nov 8, 2015 @ 12:01 am

By Frank Porcelli

You've heard the plot points: longer lives, the disappearance of traditional pension plans, and markets that may not deliver what investors need from them. As it stands now, the story ends up like this: Americans are distressingly unprepared for the realities of retirements that may last as long as 30 years.

What are we missing when it comes to retirement readiness? Over countless conversations with financial advisers, one answer keeps coming back: We haven't given investors an intuitive way to see their savings through the lens of the income they'll have each year in retirement — or an easy way to see how the choices they make can affect that income.

It's time to change the conversation — and the definition of successful retirement planning — to put the focus on retirement income. All of us need to lock arms on this important mission.

Once we do, we can face down the reality that retirement readiness is a problem for virtually everyone. Americans nearing retirement report nest eggs of just over $130,000, which translates into about $9,000 per year in annual income in retirement — $36,000 less than most of these investors say they'll need to live on, according to findings from BlackRock's recent Global Investor Pulse Survey.

So how did we get here? For decades, we've all been married to the concept of the lump sum — to accumulating as much wealth as possible. The nest egg is practically written into our DNA: Calculate a number. Save and invest to reach it. Retire.

But we tend to bury the ending, when a nest egg becomes a source of income — in other words, the “paycheck” we receive for the rest of our lives.


And even when we are thinking about retirement income, we often aren't equipped to tackle the thorniest questions. The lump-sum mindset eclipses crucial factors, like how to adjust for shifting income needs in different years or savings rates that can go up and down.

Most retirement investing strategies focus on market performance in the accumulation phase and then apply broad guidance (such as the 4% withdrawal “rule”) on the spending side. That's “nest egg” thinking. What we really need is income thinking, along with capabilities for building portfolios and spending plans that map to our actual incomes and goals in retirement.

There are tools out there that will translate savings to income, but they use backward-looking assumptions, and more importantly, don't reflect longevity risk.

Without that information, it's hard to get an accurate estimate of the true cost of retirement income, leaving too much to guesswork and raising the potential of a surplus — or, worse, a shortfall.


We need to partner to create retirement strategies that, with a fair degree of certainty, will generate the retirement income that clients want for as long as they need it.

Important steps toward this include:

• Changing the benchmark for success from short-term market performance to lifetime retirement income.

• Taking longevity risk off the table by monitoring how much it costs in today's dollars to produce future retirement income.

• Helping set a baseline for retirement income and translating that baseline into appropriate portfolios for clients.

• Setting clients up with a spending plan that accounts for actual life expectancies and adjusts as markets and other circumstances change.

This is no small task, but there's plenty of opportunity here too. Getting investors to think not just in terms of what they're putting away today but also about the income they'll need tomorrow helps advisers restart the retirement conversation, get on the same side of the table as their clients and get better insights into how to build portfolios that will deliver on their clients' goals.

By reframing the conversation to focus on retirement income, we truly believe we can help people better see what lies ahead and better prepare for the years ahead. Let's work together to make sure their stories turn out right.

Frank Porcelli is chairman of BlackRock's U.S. wealth advisory business.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

Supreme Court review of SEC judges could roil pending cases

But long-term, the agency may get around questions of constitutionality by changing the way it brings on administrative law judges.

Lightyear Capital takes 50% stake in $9 billion HPM Partners

Private equity backing could fuel acquisitions by the large RIA.

Tax reform: 7 essential strategies for financial advisers

While advisers face the difficult task of analyzing the law's impact, they will also have a significant opportunity to prove their value by implementing money-saving strategies for clients as well as their own businesses.

Tax law: Everything advisers need to know about the pass-through provision

The provision is tricky, but could provide advisers and business-owner clients with sizable tax savings.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print