The debt crisis in Europe, slowing growth around the world, uncertainty surrounding the U.S. deficit – I think we can all agree that there are plenty of client questions out there to keep us busy. In all parts of life, there are things that we can control and there are things that we can not, and financial planning is no different. Showing your clients how to differentiate between the two helps move the conversation from questions to solutions.
This is part one of a two-part series on the key risks to retirement income that financial advisors should consider, according to Fidelity Investments Canada’s research, when they are helping their clients develop retirement income plans. Fidelity first published a paper on this topic, entitled Lifetime income planning, in 2005. Our research at that time illustrated that longevity, inflation, asset allocation, annual inflation-adjusted withdrawal rates and out-of-pocket health care costs were real risks for those drawing income from their investments. We believe that these five key risks require special attention when it comes to retirement planning. The original paper has remained very popular with advisors. I know this because we’ve fulfilled over 35,000 requests for it since it was first published!
In part one of this series, I will focus on the risks that are beyond the control of investors: longevity and inflation. The second part will look at the risks that are within the control of investors: asset allocation, withdrawal rate and out-of-pocket health care costs. While some of the risks might be not fully within our control, there are always actions we can take to ensure that our clients are not left unprepared.
A lot has happened since our retirement income paper was first published, not the least being the global financial crisis, the subsequent recession, the recovery (which at times seems wobbly at best) and the ongoing market volatility. We thought it was important to revisit the five key risks in light of what has happened in recent years, and to answer two questions about each risk. One, does it remain a “key” risk to retirement income? Two, if so, what did the events of recent years teach us about the risk? We published the answers to these questions in our updated report, After the global financial crisis – The five key risks to retirement income, which you can find on our website.
The results leveraged responses to our annual Fidelity Retirement Surveys. The survey has now been carried out for six years, by the well-respected firm The Strategic Counsel. One of the important features of our retirement survey is its consistency. We do occasionally discard questions that we think have become irrelevant, and we don’t hesitate to add questions to reflect changes to the economic, financial or market environment. However, by asking a set of core questions each year, we develop an historical data set and a deeper understanding of attitudes and concerns and how they are changing. So what does our “revisit” reveal?