5 Strategies for Managing Client Retirement Portfolios

When you are responsible for protecting capital, generating income and mitigating inflation risk, it helps to have access to all the investment and insurance products you can get.

One of the most valuable services a registered investment advisor (RIA) can provide is planning and managing their clients’ retirement investment portfolios.

The primary objective of retirement plans is to provide your client with a comfortable lifetime income and hopefully preserve financial assets for their beneficiaries. Given the risks investors face today, this requires a tremendous combination of communication and risk management skills, not to mention attention to details, discipline and access to a broad range of investment and insurance products.

Among the risks retirement portfolio managers face today are:

  • Longer life expectancies
  • Higher healthcare expenses
  • Higher long-term care expenses (ALF, nursing home, etc.)
  • Inflation
  • Stock market fluctuations
  • The demise of pensions
  • Social Security solvency

The 3 pillars of a retirement income planning

In general, there are three pillars to any retirement strategy. They are:

  • Protecting against the loss of capital – Downturns in the market are inevitable. Retired individuals may be able to weather a 10-15 percent loss during bear markets, but anything more can spell trouble. If your clients rely exclusively on withdrawing a fixed percentage of income from their equity portfolio, and the market experiences a downturn, they run the risk of outliving their money. Your job is to provide active risk management to minimize losses and protect remaining assets over the long term.
  • Generating income from cash, not capital – This pillar means your clients should receive their primary income from dividend income rather than selling assets. A blend of high-yield fixed income securities and dividend-paying stock should provide a steady cash flow, while leaving the primary investments untouched.
  • Providing inflation protection – Options here include preferred stocks, international stocks, REITs and treasury inflation protected securities (TIPS), notes Investopedia.

The 5 challenges of retirement portfolio management

Typically, retirement portfolio planners and managers need to devise a portfolio flexible enough to fulfill all five of the needs below:

  • Ensure liquidity for emergencies.: Liquidity refers to the ability to quickly revert assets into cash. In retirement, liquidity is obtained for emergencies, ranging from a major illness to catastrophic damage to a home. Ensure your clients have enough liquidity so they can take out “emergency cash” without having to sell off their core investments.
  • Provide a stable lifetime income: Perhaps no area is more important than having a lifetime income. A conservative portfolio composed of investment-grade and shorter duration bonds is a start. The structure will depend on your clients’ needs, and as time goes on, the strategy should shift away from “return on investment” and more toward “reliability of income.” You might also consider adding annuities, which pay a fixed sum of money each year. Independent RIAs who work with Purshe Kaplan Sterling Investment (PKS), for instance, can offer annuities through our insurance affiliate PKS Financial Services Inc that include additional insurance benefits such as life, long-term care, final expenses, and disability insurance. Long-term care insurance can be a wise investment given the high cost of long-term care in the United States. These products can be bought through an annuity at a more reasonable rate than might be possible by buying a general long-term care plan.
  • Protecting against portfolio losses: As mentioned in the three pillars, investment losses will happen. Active risk management is an ongoing effort meant to avoid major losses, minimize the effects when losses do occur, and recover and protect remaining assets to ensure a continuing flow of retirement income.
  • Continue investing for long-term growth: Top RIAs strive to find investments that will continue to appreciate without risking lifetime income. That’s a difficult bucket to fill, which is why PKS offers an open architecture for independent RIAs.
  • Ensure a family legacy: One reason people work hard is so that they can leave a legacy to their children and grandchildren. Here again, life insurance and annuities can used to ensure a portion of accumulated wealth is paid out to beneficiaries over a specific period of time.

Of course every situation – and every client – is different. As an RIA, your strategies for managing client portfolios should always center on protecting assets, generating income, providing a reliable income in retirement, and ensuring your clients have a legacy to leave to their loved ones. These keys strategies will help in managing client retirement portfolios.

Purshe Kaplan Sterling Investments (PKS) provides best-in-class support, platform tools and practice management resources for the retirement plan business. Through our network of direct plan sponsor selling and dealer agreements and the custodial strength of our clearing house National Financial Services LLC,  we provide our Registered Representatives and clients the flexibility to build and manage an efficient and scalable retirement plan practice.