Despite changing the game in accumulation, ETFs matter less in decumulation says advisor

“A lot of these products are designed specifically to generate income and they can have a legitimate role. But for our clients, generally, we haven’t found the additional complexity or cost or possible risks associated with those outweigh the benefits that are there. We don’t really see them as a necessary tool to have in there. For us, a distribution is not the same thing as a retirement income strategy,” Riddell says.

How Evan Riddell approaches decumulation

Decumulation planning in Riddell’s practice begins with a full understanding of the client, their needs, and their goals. Through that process he determines what the client needs on a daily, weekly, monthly, and yearly basis. The portfolio, then, is broken down into three categories. He keeps 12 to 18 months of secure liquid assets in place to cover upcoming needs. He allocates several years of fixed income runway to help the client ride out any storms in the equity market and makes significant equity allocations to provide an ongoing long-term growth engine that clients need for a multi-decade retirement.

Riddell regularly revisits clients’ needs, goals, and shifting realities once that plan has been established. He talks them through what can happen during drawdowns or periods of market volatility and does “lifeboat drills” with clients, discussing what will happen when markets fall.

While the allocations Riddell makes for his retired clients come with natural distributions and some yield, he says that his team doesn’t work to maximize yield just because someone has entered retirement. He argues that the old standbys of total return, diversification, cost, risk, and tax efficiency should outweigh any particular income yield. Portfolio rebalancing allows Riddell to replenish his clients’ ‘cash’ sleeve on a regular basis without the need for higher yielding products.

What ETFs can, and can’t, do for Riddell’s retirees

Riddell says he will still use ETFs in many of his retired clients’ equity and fixed income allocations. Typically, an ETF will be a lower cost and more tax efficient option than a mutual fund with the same strategy. However, he notes that sometimes a mutual fund will be more advantageous.