Fixed indexed annuities used with traditional retirement portfolio strategies improve the chances of creating sustainable income throughout retirement, according to a survey released today by Topeka, Kan.-based Security Benefit Corporation.
Entitled Planning With Certainty: A New Strategy For Retirement Income, the paper described the results of research the firm conducted with a leading independent actuarial consulting firm on various joint and single life retirement scenarios.
The tests were 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 using three modern strategies:
• Mutual fund systematic withdrawal (base case).
• Variable annuities (VAs) combined with mutual fund systematic withdrawals.
• Fixed income annuities (FIAs) combined with mutual fund systematic withdrawals.
For strategies that included either an FIA or a VA with a guaranteed lifetime withdrawal benefit, retirement income was funded by mutual fund withdrawals for the first 10 years of each projection period, and then from the lifetime benefit.
The optimal retirement income allocation included an FIA with a GLWB in the portfolio mix, according to the research. 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.
“FIAs that include a GLWB rider can offer retirees a predictable income they can never outlive,” said Doug Wolff, president of Security Benefit Life Insurance Company. “While there are a number of vehicles in the marketplace that can generate guaranteed income in retirement, including highly popular variable annuities, FIAs are able to generate attractive income from retirement assets without having to annuitize or give up control of the assets.”
FIAs grow at the greater of a guaranteed minimum rate or interest that is linked to the return of a specified market index. They include the potential for some market-linked interest credits with no risk of loss of principal because of market downturns and volatility.