Morningstar Research Quantifies the Value of Financial Planning for Retirement

New retirement income research from Morningstar provides a framework for quantifying the value of effective financial planning for retirement.

Morningstar’s retirement research team uses the concept of “Gamma” to refer to the extra retirement income that can be attributed to better financial planning and decisions.

The researchers concluded that retirees can generate roughly 29 percent more income using a “Gamma-efficient” retirement income strategy. This 29 percent is equivalent to an annual arithmetic return increase of 1.82 percent, which is clearly meaningful in a low yield, low return world.

There are 5 fundamental factors or techniques that contribute to this Gamma efficiency:

  1. Total Wealth Asset Allocation
  2. Dynamic Withdrawal Strategy
  3. Product Allocation and Annuity Allocation
  4. Tax Efficiency
  5. Liability-Driven Investing and Optimization

Interestingly, the dynamic withdrawal strategy was the most significant factor.

Source: Morningstar 

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