Mutual Fund Strategies Still Rule in Retirement Income

Advisers continue to stick with the basics, using dividend-paying stocks or mutual funds and systematic withdrawals from mutual funds to fund their clients’ retirement income, according to Cerulli Associates.

According to data from the firm, the percentage of advisers who always used those two methods in 2008 rose slightly to 49% and 47%, respectively. In 2007, the percentages were 46% and 45%, respectively.

Fewer advisers said they always use variable annuities (VAs) as retirement income products than in 2007. The percentage of advisers who used VAs with living benefits was 27% in 2008 compared with 38% in 2007. The percentage of advisers who used systematic withdrawals from VAs went from 33% in 2007 to 26% in 2008.

Annuitization and packaged retirement income mutual funds also showed a slight drop. In 2008, 8% of advisers always used annuitization, down from 10% in 2007. Likewise, packaged mutual fund products went from 10% to 6%.

Individual fixed-income securities saw a notable increase, from 30% in 2007 to 38% in 2008.

Cerulli notes in its report that the mutual fund strategies advisers typically employ might be optimal in a bull market, but “the currently excessive market volatility has identified a need for an additional component of guaranteed income.’

Variable Annuities

For advisers who use variable annuities with their clients, living benefits are becoming a more important consideration. More than seven out of 10 advisers cite living benefits as essential in their analysis of VA provider (up from 62% in 2006), Cerulli found.

Overall, it is still only the fourth most important factor in the section of a VA provider, behind investment options, financial-strength rating, and pricing, according to Cerulli. “Guaranteed income options with liquidity features are gaining traction in the community of advisers who use VAs as an arrow in their retirement income quiver,’ Cerulli said.

The results are from the latest The Cerulli Edge—Retirement Edition. More information is available at