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Morningstar Enhances Managed Accounts Platform

By Corie Russell editors@plansponsor.com | May 06, 2013
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May 6, 2013 (PLANSPONSOR.com) - Morningstar Inc. has introduced the next generation of Morningstar Retirement Manager, its advice and managed account service for defined contribution (DC) participants.

Among the most significant enhancements to Retirement Manager is the addition of Income Secure, which provides individualized, tax-efficient retirement income drawdown advice. A Morningstar research paper, “Alpha, Beta, and Now...Gamma,” shows that a participant’s withdrawal strategy—how much to take from a retirement portfolio each year and from which account (IRA, 401(k), taxable, etc.)—can have the most significant effect on the amount of income an investor has in retirement.

Retirement Manager can evaluate all of a participant’s holdings across both taxable and tax-deferred accounts and provide a specific, individualized drawdown plan that outlines how much he should pull from each account each year, considering taxes and minimum required distributions. “From an individual standpoint, [participants] just want to know how much they can spend in retirement,” James Smith, vice president of client solutions at Morningstar Investment Management, told PLANSPONSOR.

Retirees must make many complex decisions every year based on changes that will occur upon leaving the work force: Savings mode will end, and participants will incur different tax rates, for example. “This helps simplify the process for the average person,” said David Blanchett, head of retirement research at Morningstar Investment Management. “Our recommendations will be very different based upon different states.”

Morningstar has also enhanced its investment recommendations to reflect its latest liability-driven investment (LDI) methodology. LDI recognizes that investors in or nearing retirement face different risks than those in the accumulation phase. For example, two investors may have the same stock-bond split in their portfolios, but the investor closer to retirement has greater need for inflation, currency and interest rate protection than someone further from retirement.