Advances put retirees in the driver’s seat

In the early days of the automobile, many people found the newfangled invention scary and intimidating.

In the early days of the automobile, many people found the newfangled invention scary and intimidating. When Teddy Roosevelt took the first presidential ride in a horseless carriage in 1902, newspapers praised him for his “characteristic courage.” (Never mind that the car was followed by a horse-drawn carriage in case there was a breakdown or an accident.)

Today, there’s similar confusion and skepticism about another vehicular advancement. This time, however, the focus is on a set of newfangled investment vehicles that propose to provide investors with a steady stream of income in retirement.

Unfortunately, investors who are already intimidated by the complexity of financing their retirement are sometimes further perplexed by the many complex retirement income solutions now being offered.

No wonder. Consider this recent product description: “The [guaranteed withdrawal benefit] is available for 0.55% of the guaranteed withdrawal amount (as defined in the prospectus), which is deducted from the account value. If a “step-up” is elected, the annual charge may be increased to the charge assessed to current annuity purchasers, up to a maximum of 1%. The GWB is only available to purchasers age 85 or younger. It is revocable only within the 90 days following the fifth contract anniversary.”

Give us more products like that, and maybe before long, we’ll see marketing campaigns targeting the “courageous investor.”

The reality is that theories and practices about investing for and in retirement are going through a period of dramatic change. New investment technologies, financial engineering, changes in lifestyle, and levels of financial affluence have launched a new era in retirement investing. There is an astounding variety of new, better and far more flexible investment solutions than what was available a generation ago. Navigating through such a fast-changing, unfamiliar environment, however, can be bewildering.

But it’s important to recognize that things won’t always be as unsettled or confusing as they seem now. Just as modern-day motorists have grown accustomed to dealing with the variety of switches, levers and pedals in their cars, tomorrow’s investors are bound to become more comfortable with the challenges and solutions of retirement investing.

At the same time, retirement vehicles themselves are likely to become far more user-friendly. For instance, one of the new, relatively simple products being introduced by fund firms are payout funds, which try to maintain a sustainable payment over several years.

With time, simpler retirement solutions that meet the market tests of ease of use and broad effectiveness will emerge. Many retirees will ultimately turn to very straightforward (if not optimal) versions of these tools to meet their basic needs.

But advisers will always be needed to help people manage more-involved choices and in some cases do the driving for those who don’t want to do it themselves.

It’s fascinating to consider how the “courageous” motorists who braved the horseless carriages of yesteryear have given way to today’s nonchalant American motorists who drive cars that fulfill the same basic need for transportation and personal freedom yet are infinitely more complex and varied.

When it comes to tomorrow’s retirement vehicles, there likely will be a huge market for compelling designs and specific combinations of features. Rules and regulations also will ultimately evolve to reflect the new reality. And many, if not most, investors will continue to need the help of experts to keep things in tune and roadworthy.

All of this adds up to a golden age of opportunity for advisers. Your clients will look to you to help them navigate through the vast array of choices for financing retirement. As the expert, you are well positioned to help them choose which products best suit their particular needs.

In a crowded and confusing marketplace, the adviser who can sort it all out adds substantial value.

That leads me to one last observation: If a cable TV show based on customizing cars can become megahit, is there someone out there pitching “Pimp My Retirement” to NBC?

John Ameriks is a principal at The Vanguard Group Inc. of Malvern, Pa., and an expert on retirement strategies.