AP News

Morningstar research cites importance of planning


CHICAGO (AP) — Morningstar Inc. released research Wednesday that it says shows that efficient financial planning techniques can boost a retiree's annual income by roughly 2 percent.

The investment research company refers to the extra income an investor can earn by making better financial decisions as "Gamma," which goes beyond so-called Alpha decisions involving the selection of investment funds or managers.

"Unlike traditional Alpha, which can be hard to predict, any investor can achieve Gamma by following an efficient financial planning strategy," said David Blanchett, head of retirement research for the Chicago firm's investment management division.

Morningstar researchers focused on five techniques that can boost a retiree's income: optimal asset allocation based on total wealth; a flexible withdrawal strategy; product allocation (guaranteed income products versus traditional investment products); tax efficiency; and liability-driven investing, which factors in risks like inflation. They then created a series of portfolios and applied the techniques to a series of simulations.

The researchers found that a hypothetical retiree may generate about 29 percent more income than average using a Gamma-efficient retirement income strategy, or the equivalent of an annual return increase of 1.82 percent.

The investment research company said it has implemented the techniques in Morningstar Retirement Manager, its defined contribution advice and managed account service.

Morningstar shares rose 13 cents to $62 in afternoon trading.


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