150 years ago, to produce a document, you needed a pen, some ink, and a lot of patience. This changed in the 1870s when Christopher Latham Sholes discovered the perfect combination of letters to display on his prototype typewriter keyboard.
We know the invention as QWERTY, after the first six letters on the top row of the keyboard. Whilst it made writing more pleasant, the new layout also overcame the mechanical problems which made early typewriters cumbersome and impractical. Ultimately, Latham Sholes made the mass production of compact and user-friendly typewriters possible, revolutionising how we communicate and work to this day.
The story illustrates how, sometimes, simply rearranging what already exists can unlock elegant solutions to complex problems. In the same vein, this article explores how viewing the traditional approach to retirement income planning a little differently, advisers can release unexpected potential for their clients.
Retirement advice will evolve faster than you expect
The FCA's latest thematic review (TR24/1) called for improvements to retirement income planning practices. The regulator emphasised that clients in decumulation should be treated differently from clients in accumulation. This necessitates the creation of propositions that consider specific retirement needs to deliver personalised and robust plans. A recent Copia Capital and Wealthtime survey found that only 2%¹ are satisfied with their current approach.
To make things more complex, the process must be documented and repeatable. Firms that fail to move in the direction indicated by the FCA are exposing themselves to advisory risks if things don’t go as planned for their clients.
Despite the financial adviser community and the FCA agreeing that something different is necessary, according to a recent survey1 80% of firms keep offering the same model portfolio solutions to clients whether they are savers or spenders.
It could be because planning retirement income is arguably one of the trickiest jobs for advisers. Achieving client lifestyle, income and legacy objectives have to be planned against the unpredictable nature of later life, various risks including longevity and market volatility, as well as tax considerations. This makes establishing a consistent process extremely difficult. Especially when the traditional equities/bond allocation can sometimes fall short, potentially leading to foreseeable harm.
Two main risks of retirement income planning
Let’s consider the two main risks of retirement income planning, referred to previously: the risk that early volatility affects the client’s income capacity (sequencing risk) and the risk that the client will outlive their resources (longevity risk).
Most clients approaching retirement need to stretch their savings to achieve their desired lifestyle. Some clients might also want to give their legacy the best chance to grow. Supporting both objectives often involves the client taking more investment risk.
However, more risk equals more exposure to market volatility. What happens to clients' income security when volatility hits the market hard, as it did in 2022? But what alternatives are there?
A new solution integrated into the Timeline cash flow modeller
Retirement income advice needs its QWERTY keyboard moment. We think we've found it with our Secure Lifetime Income (SLI) solution. For clients in many circumstances, it could be the missing piece to creating more robust and consistent retirement plans.
SLI delivers a guaranteed income producing asset which can help optimise drawdown portfolio outcomes. It pays an income for life, at a rate based on market conditions at the time of purchase and enhanced by personalised underwriting. Like any other asset, it sits inside the client’s SIPP. The income is paid gross of tax into the client's SIPP cash account, so it can be withdrawn or reinvested at will.
SLI helps secure the client's income strategy, even in the face of adverse market conditions, because its performance is completely uncorrelated to financial markets.
Including SLI in retirement plans as a substitute for fixed income provides numerous advantages, addressing at once many of the following challenges facing clients in decumulation:
An opportunity for change
Try it for yourself. SLI is integrated within the Timeline cash flow modeller. In a few clicks you can test how it could materially improve your clients' expected outcomes.
Financial advisers are redefining their approach to retirement income planning. This integration is one of the tools now available that can help you incorporate SLI into your advisory process without adding complexity to your operations.
Changing deep-rooted practices can be difficult. Just like the QWERTY keyboard, sometimes, it takes a new idea to shake things up.
If you’d like to find out more about how including a guaranteed income producing asset delivered by Just’s Secure Lifetime Income solution could benefit your clients, or, how to include SLI using the Timeline cash flow modeller, please get in touch by calling 0345 302 2287 or emailing slienquiries@wearejust.co.uk
1Rethinking Retirement - Changing Gear - Copia Capital. Based on 160 survey responses.