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For immediate release, 04/29/2014

RIAs and Fee-Based Advisors Say Tax Deferral is Key to Solving the Retirement Income Challenge

Jefferson National’s Latest Survey Shows a Majority of Advisors Also Rely on Absolute Return and Dynamic Withdrawal in Current Market

Louisville, Ky. — April 29, 2014 — Faced with failing safety nets and longer life-spans, more than two-thirds (71 percent) of financial advisors say the biggest challenge to generating sufficient retirement income for their clients is caused by a combination of three key factors: a low yield environment, maintaining adequate equity exposure and managing volatility, according to a recent survey by Jefferson National, innovators of the industry’s leading tax-advantaged investing solution for RIAs, fee-based advisors and the clients they serve.

“The retirement income challenge is tougher than ever and the number-one concern for most Americans is outliving and outspending their savings,” said Laurence Greenberg, President, Jefferson National. “The RIAs and fee-based advisors we surveyed recognize the importance of using tax deferral, managing a portfolio for total return, proactively managing risk and implementing a dynamic withdrawal strategy as the foundation for generating increased retirement income in today’s challenging environment of low yields, higher taxes and ongoing volatility.”

Tax deferral is one of the most important solutions to generate increased retirement income, according to the vast majority (85 percent) of advisors surveyed. When using tax deferral to supplement a retirement income strategy, 88 percent rely on asset location to help increase returns without increasing risk, while 76 percent rely on withdrawal sequencing, first spending down taxable accounts and then spending down tax-deferred vehicles.

When implementing their primary investment approach to generate retirement income, more than half of advisors (58 percent) use a Total Return Strategy, including the capital appreciation of a portfolio as well as dividends and interest. Other approaches such as a Bucket Strategy (25 percent), an Income Investing Strategy using only dividends and interest (8 percent), and a Bond Ladder (1 percent) were significantly less popular.

The importance of setting the right withdrawal strategy at the right rate cannot be overlooked. In the current low yield environment, research from Morningstar suggests a “safe” withdrawal rate is 2.8 percent. As Morningstar’s research points out, this would require substantially more savings. Most advisors (83 percent) believe their clients have not accumulated enough assets to live off a rate of 2.8 percent. And more than half of advisors (53 percent) still recommend a safe withdrawal rate to be 4 percent.

Additional survey findings include:

  • When implementing a withdrawal strategy, 48 percent of advisors use a Dynamic Withdrawal Strategy, adjusting clients’ withdrawals based on market conditions and portfolio valuation. Other withdrawal strategies include Constant Dollar Amount (23 percent), Constant Percentage (14 percent), and Changing Percentage Based on Life Expectancy (8 percent).
  • In terms of products used to generate retirement income, advisors report the most popular as a diversified portfolio of mutual funds (67 percent), variable annuities with income guarantees (51 percent) and dividend-paying equities funds (51 percent).
  • To help enhance retirement income, delaying Social Security to increase benefits is one of the most popular strategies, used by 78 percent of advisors.
Media Relations
JeffNat Deborah Newman 502.587.3858

About this survey

More than 420 responses from participating advisors were collected online throughout March 2014 as part of Jefferson National’s series of ongoing surveys addressing the issues that RIAs and fee-based advisors care about the most. The margin of error in this survey was +/-5%.

About Jefferson National

We are committed to serving RIAs and fee-based advisors with investing solutions that help their clients build wealth and achieve financial goals. Named the industry “Gold Standard” for our unique approach, we continue to invent new ways to help advisors take their seat on the client’s side of the table. We believe above all that consumer value is in everyone’s best interest.