Advisors are still struggling with the best way to createretirement spending plans for their clients, with no singlestrategy emerging as a clear leader.

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That’s according to the latest quarterly survey of U.S.financial advisors from Russell Investments, which found that howto come up with an appropriate spending policy was one of their topconcerns.

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While the “Financial Professional Outlook” found that advisors’other top worries were “setting reasonable spending expectations”(52 percent) and “maintaining sustainable plans” (44 percent),“determining sustainable spending policy” was high on the radar for33 percent of respondents. This was despite the fact that more than60 percent of survey participants said that more than half of theirclients are in or near retirement.

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When clients are already retired, one might think that it’s abit late to worry about how to create a sustainable retirementspending plan that accounts for market volatility and otherunpredictable financial shocks. But there’s still cause for alarm,and perhaps time to adjust, since surprises may be instore.

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Why might this be necessary? “While generating sustainableretirement income for their clients is already a challenge foradvisors, the eventual rise in interest rates could certainlyfurther impact the financial security of those in or nearretirement,” said Rod Greenshields, consulting director forRussell’s advisor-sold business.

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“With the Fed’s quantitative easing measures drawing to a closeand the American economy back on line, there could be momentousimplications for retirees once interest rates rise,” Greenshieldscontinued.

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What are advisors doing now regarding spending plans? Accordingto survey respondents, 25 percent base retirement spending plans onclient spending patterns prior to retirement. Twenty-two percentfollow “a rule of thumb like the ‘4 percent rule,’” and 19 percentuse some type of time-segmented bucket strategy. But those aren’tthe right approaches, according to Greenshields.

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“Common approaches like the ‘4% rule’ are easy to understand,but do not account for a client’s individual circumstances and canlead to unintended mistakes,” he said. “At Russell, we thinkadvisors would do well to follow the lead taken by defined benefitplans and calculate a funded ratio (the actuarial net present valueof assets divided by expected lifetime liabilities).”

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According to Greenshields, finding the cost of a client’sliabilities compared to the value of their assets may be “moresophisticated” math, but “the outcome is a simple yet powerfulpercentage that most clients understand immediately.”

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One reason the funded ratio is a preferred method, according toRussell, is the client’s risk capacity.

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While 38 percent of advisors said they use a risk profilequestionnaire, based on the client’s estimate of how much risk hecan tolerate, to set the asset allocation in client portfolios,they should think instead, as clients near retirement, about howmuch risk client assets can tolerate while still funding retirementexpenses.

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Using a funded ratio incorporates risk capacity, and it can thenbe used to adjust a portfolio’s allocation as client needs changeor the economy itself warrants.

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