The reports, “Planning With Certainty: A New Strategy For Retirement
Income,” indicater FIAs used in combination with traditional retirement
portfolio strategies significantly improve the chances of creating
sustainable income throughout retirement. Security Benefit Corporation
conducted the research with a leading independent actuarial consulting
firm on various joint and single life retirement scenarios.
The study’s researchers sought to determine the best allocation among a range of investment choices to optimize chances for retirement planning success, specifically not running out of income and leaving assets behind. Using an approach similar to modern portfolio theory, the analysis considered allocations between three modern strategies:
• Mutual fund systematic withdrawal (base case)
• Variable Annuities (VAs) combined with mutual fund systematic withdrawals, and
• FIAs combined with mutual fund systematic withdrawals.
(For strategies that included either an FIA or a VA with a Guaranteed Lifetime Withdrawal Benefit (GLWB), retirement income was funded by mutual fund withdrawals for the first 10 years of each projectionperiod, and then from the GLWB.)
Based on the research’s optimal retirement income allocation, the point along the efficient frontier that best reduced the risk of failure and heightened the odds of success included an FIA with a GLWB in the portfolio mix. The analysis further suggested that combining FIAs with a GLWB and conventional mutual fund spend-down strategies produced higher potential for achieving the goals of a personal retirement income plan.
While the analysis strongly suggests that retirees will not be able to finance a sustainable retirement income with only one traditional product class, it also suggests that implementing a framework that mixes and matches mutual funds and FIAs in various combinations can be an effective way to utilize available resources to generate lifetime income, protect against expenses related to unforeseen events, and help maintain purchasing power over the life of a retiree.The research reports are available here.