There are just a couple of things almost all clients need when they hit retirement—predictable income and protection against a cluster of risks, including longevity risk, performance risk and sequence-of-returns risk.

Historically, many advisors have serviced their retiring clients with the “4% rule,” where annual withdrawals start at 4% of the entire portfolio and increase with inflation, and the balance of the portfolio remains at least 50% invested in equities. This would give a client about 30 years of retirement income, which in many cases is more than enough.

But changes to some of the underlying assumptions of the 4% rule have some advisors taking a second look and noticing that not all of those retirement risks are being cut down to the extent thought. At the same time, they’re also taking a second look at a product that dampens those risks very well, but historically has faced an uphill battle in the RIA community: annuities.

“Retirement planning is now a 30- to 35-year endeavor rather than a 15- to 25-year endeavor, in an environment without a pension and with historically low interest rates,” said David Lau, founder and CEO of DPL Financial Partners, a provider of low-cost, commission-free annuities based in Louisville, Ky. “Even with rates rising, they’re still below historic norms, which makes it a real challenge to deliver retirement income when a client or an individual needs to self-fund for 30, 35 years.”

Lau made the comments at roundtable discussion this week called “The 4% Rule Reimagined.”

A modern annuity strategy, when used properly, can make up for some of the shortcomings the 4% rule faces in the current economic environment, Lau said, not least of which is that an annuity can be a much more efficient—and therefore less expensive—alternative to bonds.

“If you’re looking to fund $50,000 in retirement for 30 years, it might take $1.2 million in fixed income at a 3% interest rate. If you look to do it with an annuity, we can probably do that for $750,000 or $700,000, somewhere in that range,” he said. “You’re meeting that income need much more efficiently through the annuity, giving you more assets to potentially be allocated to equities or wherever you want to invest them.”

In addition, Lau said, the 4% rule does not reflect a client’s risk tolerance, which is easily scored in the accumulation phase of a client’s investment life, but not so easily identified in the unwinding phase.

“‘How do you feel about reducing your income?’ is a whole different question from ‘How would you feel if the market goes down?’” he pointed out.

Joining Lau in the discussion earlier this week were David Blanchett, managing director and head of retirement research for defined contribution solutions at PGIM, which is Prudential Financial’s global investment management arm, and Shannon Stone, a CFP and lead wealth advisor at Griffin Black in Redwood City, Calif.

“It’s really difficult to put into words how awful this year has been,” Blanchett said. “We’ve got inflation up 6% or 7%, we’ve got balanced portfolios down 20%. Real returns are negative 25%. Bitcoin, bless its heart, is down even more. Of all the times that people need help, this is an example of it.”

That help, for some clients, could come in the form of an annuity, but the biases against annuities among fiduciary advisors and their clients have been very strong and hard to bend, the panelists said, noting that the greatest objections most advisors and clients have against annuities are that they’re expensive and complex, insurance companies “can’t be trusted” and advisors can do a better job with income investing.

For example, Stone said she once worked through a long simulation with a client where an income stream would remain in place for him and his wife—and then for his wife when he died—and saw a lot of excitement … until she told him the strategy relied on an annuity.

“He said, ‘I’m not giving my money to an insurance company,’” Stone recalled.

That’s typical of the anti-annuity argument. Yet a lot of objections stem from aspects of annuities that have changed over time, the panelists said.

“Annuities are not controversial for people who study retirement for a living. They are controversial generally because of compensation, because of commissions,” Lau said. “So we’ve launched a commission-free insurance platform to eliminate the conflict of interest.”

Whenever RIAs have avoided annuities outright, they haven’t kept up to date on what the modern versions of the product can offer, he said.

“Most RIAs have no idea how an annuity works, or what all the types of annuities are,” he said. “And a lot of advisors think they can handle the assets better. No, they probably can’t.”

That’s because annuities, which are insurance products, rely on risk pooling, he said.

“At the core of it is an insurance company managing a fixed-income balance sheet. They’re managing a massive fixed-income portfolio,” he said. “And insurance companies are among the best in the world at managing and building fixed-income portfolios.”

It’s for that reason that annuities can still pay out a fixed amount even if the bonds underlying them have dropped in value.

“Insurance companies don’t market-time,” Blanchett added. “There are some crappy products out there. Truth. But there are terrible mutual funds out there, too. There’s this notion that advisors aren’t going to use all of these products to help a client because a few are bad. Some advisors have hundreds of clients and they haven’t recommended a single annuity.”