Morningstar Announces New Retirement Income Research

Introduces "Gamma," the additional retirement income that comes from making better financial planning decisions

Sep 19, 2012, 10:29 ET from Morningstar, Inc.

CHICAGO, Sept. 19, 2012 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced new research that quantifies how much additional retirement income, or "Gamma," investors can generate by making better financial planning decisions.

"Investors arguably put a lot of time and effort into selecting investment funds or managers they hope will outperform the market—the so called 'Alpha' decision. However, Alpha is just one of many important decisions that can have a significant effect on retirement income. We refer to the extra income an investor can earn by making better financial decisions as Gamma," said David Blanchett, head of retirement research for the Morningstar Investment Management division. "Unlike traditional Alpha, which can be hard to predict, any investor can achieve Gamma by following an efficient financial planning strategy."

In the paper, researchers focused on five fundamental financial planning decisions or techniques for retirees—optimal asset allocation based on total wealth; dynamic withdrawal strategy; product allocation (i.e., guaranteed income products versus traditional investment products); tax-efficient allocation and drawdown; and liability-driven investing. The researchers created a series of portfolios and drawdown strategies that employ these techniques as well as a base case scenario drawn from the practices of average U.S. investors. Through a series of simulations, the researchers found that a hypothetical retiree may generate approximately 29 percent more income using a Gamma-efficient retirement income strategy, which is equivalent to an annual arithmetic return increase of 1.82 percent, compared with the average base case strategy. Among the five types of Gamma tested, the researchers determined that using a dynamic withdrawal strategy was most important, followed by making tax-efficient allocation decisions.

Morningstar Associates has implemented these financial planning techniques in Morningstar® Retirement ManagerSM, the company's defined contribution advice and managed account service. The results from these simulations, while hypothetical in nature and not actual investment results or guarantees of future results, provide an important look at strategies designed to help retirees reach their goals. Combined, Morningstar's investment advisory affiliates are the largest providers of defined contribution managed accounts by participants served, managing accounts for approximately 800,000 participants.

To read the complete research paper, please visit

About Morningstar, Inc. Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 385,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 8 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $186 billion in assets under advisement and management as of June 30, 2012. The company has operations in 27 countries.

About Morningstar Investment Management The Morningstar Investment Management division creates custom investment solutions that combine its award-winning research and global resources together with the proprietary data of its parent company. This division of Morningstar includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, which are registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. The division provides comprehensive retirement, investment advisory, portfolio management, and index services for financial institutions, plan sponsors, and advisors around the world.

©2012 Morningstar, Inc. All Rights Reserved.


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SOURCE Morningstar, Inc.