Improperly Structured Portfolios

In this our fourth in a series of articles about helping clients in the Accumulation Phase of Retirement Planning, we address the fourth root cause of inadequate retirement saving, which is improper allocation of their retirement accumulation portfolio(s) when measured against their objectives and risk tolerance. We have been witnessing a steady decline in defined benefit plans for a few decades and today the vast majority of our clients incur the responsibility of assuming the investment risk for all of their retirement resources except Social Security benefits.

Motivating the Client to Address This Issue

Again, carefully crafted questions will create awareness and a sense of urgency about resolving the issue:

  • How does your current advisor manage your portfolio to ensure it remains focused on your objectives?
  • How has your advisor assisted you in properly diversifying your portfolio to minimize risk?
  • How has your advisor worked with you to determine that this is an appropriate level of risk for your portfolio?
  • How has your advisor worked with you to establish clear guidelines for rebalancing your portfolio?
  • How has your advisor helped you to establish a clear investment plan for your portfolio to assure you of success in attaining your goals?

Key Actions to Help the Client Develop a Properly Structured Investment Portfolio

  1. Listen for emotional issues, but take emotions out of the strategic process; develop a sound strategy that suits the client’s circumstances and risk tolerance.
  2. How much time does the client have to accumulate capital before withdrawals begin?
  3. Select the best mix of available accumulation vehicles and their corresponding investment options based on objectives, risk tolerance, and vehicles available.
  4. Minimize taxation of earnings of accumulating assets as well as distributions later, which may influence asset positioning (i.e., personal growth assets owned personally for stepped up basis vs. income securities in deferred plan or Roth).
  5. Estimate to what degree the retirement income will be created by immediate annuities and/or periodic withdrawals. This could influence the weighting of savings between accumulation vehicles.
  6. Assess how Required Minimum Distribution rules apply to a mix of accumulation vehicles, which may influence asset positioning.
  7. Educate the client as much as possible about risk and diversification.
  8. Monitor and Rebalance.

For those who wish to learn more about critical issues in retirement planning, check out Greene Consulting’s Retirement Planning Program.

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