Retirees Still Offer Advisors Opportunity, Study Suggests

Advisors can still play an important role in helping plan sponsors and participants manage an employee’s funds even after retirement, a new study by Vanguard suggests.

The vast majority of retirees (90 percent) continue to preserve their savings in tax-deferred accounts — either individual retirement accounts (IRAs) or through employer-provided plans, the study found — and they do so for a long time. About 20 percent of retirees remain in the plan five years after retiring. However, that percentage that increases markedly when a plan allows partial distributions. 

But relatively few plans allow that, Vanguard notes. In fact, 90 percent of the firm’s DC record keeping clients — which collectively claimed slightly under 267,000 DC plan participants who retired between 2004 and 2011 — take an all-or-nothing approach, requiring retirees to take a distribution of their entire account if they seek a partial distribution. That means they must roll their DC account into an IRA and then take a distribution from that IRA. In 2011, 46 percent of retirees had rolled their DC accounts into an IRA, and 26 percent had remained in the plan; just 3 percent stayed in a plan and took payments from their accounts. 

The study suggests that if plan sponsors get rid of rules forbidding partial distributions, they could encourage in-plan distributions. Additionally, many larger employer plans offer features that could keep more retirees in their plans after they retire, such as low-cost investment options, financial and investment advice for participants and stable value funds. 

And that means a continued need for advisors to assist their employer clients in administering retirees’ accounts — not to mention retirees’ need for advice in managing funds freed by partial distributions. 

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