Morningstar Advisor - December 2010/January 2011 - (Page 10)

On Topic What strategies do you use to help retirees hedge against longevity risk? Let us know your thoughts at magazine_editor@morningstar.com “We plan for cash needs through age 95, employ a slightly higher inflation rate and a conservative growth rate. We also include a special allotment for health-care needs above and beyond current spending needs. Our portfolios contain a good portion of equities balanced with alternatives such as real estate, natural gas holdings, and commodities and gold. We employ fixed annuities as well. Cash and short-term investments are set aside to meet income needs for at least two years out.” Elyse D. Foster Harbor Financial Group Boulder, CO “One strategy we use with a number of clients is we will take two thirds of their retirement assets and place them in one of our managed portfolios. This is where they will draw to supplement Social Security and any pensions they have. We place the remaining Quick Poll (given Nov. 3; 729 responses) 1 What is the state of your average client’s retirement portfolio? Poor Not too bad In good shape Sterling 2.9% 40.6% 53.9% 2.6% one third of their assets in a VA with a living benefit rider. This strategy, due to the higher fees in the VA, will underperform in a strong bull market, do quite well in a transitional market, and possibly save a client from running out of money in a scenario where the first 10 years of retirement are marked by a massive bear market.” Reginald Armstrong Armstrong Wealth Management Florence, SC Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC 2 What is the biggest risk your clients face in retirement? Longevity Investment performance Inflation Interest rate Other 51.3% 17.8% 16.2% 4.3% 10.4% “We are advising clients to maintain a diversified portfolio and exposure to equities. Even if it is only a small portion, an allocation to high-dividend-yield stocks is necessary to hedge against future inflation and near-term risks in the bond market. We also have an allocation to TIPS and commodities to hedge against higher inflation.” Steve Riley Alpine Bank & Trust Co. Rockford, IL 3 Since the financial crisis, have you increased, decreased, or kept the same your use of annuities? Increased Decreased Kept the same Never use annuities 27.8% 4.6% 37.5% 30.1% “Each situation is a little different, but in general, we are using two main strategies: 1) The income “I’ve been using what I refer to as an annuity ladder strategy. I ladder traditional fixed annuities in combination with fixed index annuities with living benefits. For the more risk-tolerant investor, I add variable annuities.” Alton L. Scott REAP Financial Group Wesley Chapel, FL benefits available on many variable annuities; 2) Laddering CDs, bonds, and structured products such as equity-linked CDs. This allows the client to create income, have some participation in both a rising interest-rate market and a rising stock market, and reduce a large portion of the risk.” Matthew G. Watters Midwest Heritage Financial Services West Des Moines, IA 4 For the typical client who owns annuities, what percentage of their retirement portfolio is allocated to annuity products? ,25% 25% to 50% .50% 67.3% 25.7% 6.9% 5 What is the biggest obstacle to using annuities? Costs Complexity Liquidity Risk of default Investment options 46.5% 25.7% 17.9% 5.9% 4.0% 10 Morningstar Advisor December/January 2011

Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011

Morningstar Advisor - December 2010/january 2011
Contents
New on morningstaradvisor.com
Contributors
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Investment Briefs
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
All Aboard!
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?

Morningstar Advisor - December 2010/January 2011