Displaying items by tag: guaranteed income

Covid-19’s continued crisis and the growing number of new strands have put lots of pressure on bond markets which has spiked an interest in annuities because there is no yield in fixed income. However, ETFs are looking to capitalize on annuities growing popularity because a defined outcome ETFs offer a lot of the same advantages as annuities. Buffer or defined outcome ETFs use options to track indices which means that by buying a series of put options and selling a series of call options they cap and floor their earnings which means a smooth stable ride that is an alternative to bond markets and annuities as an equity hedge. They also have an advantage over annuities because they don’t have the hefty upfront costs annuities usually have.

FINSUM: This is a great product to hedge the S&P but it isn’t the guaranteed income an annuity provides.

Annuities have been criticized for their lack of a national advertising campaign that could really rally interest, but that will change in 2022. A large number of retirees should give companies enough desire to boost their annuities exposure. In addition to this many of the fundamental changes in regulation such as the secure act are paving the way for annuities to be introduced in new ways. Finally, the stock market has performed better than anyone could expect coming out of the pandemic, and bonds provided now yield and little security. Investors will need to protect their gains and retirement and expect big companies to pitch to these investors more frequently.

FINSUM: Protecting existing stock gains is a great argument for individuals to consider annuities in 2022.

Retirement is a rising concern for many Americans, and that concern is only amplifying with one of the largest retirement populations—social security—being funded by a much smaller cohort of funders. About half of the population is concerned they will out-live their savings, and that’s justified given average life expectancy is almost 20 years longer than retirement. However, the 2019 Secure Act is opening new doors in retirement investing, annuities, by relieving employers legal liability for annuities. Rather than the typical safe assets like bonds that slowly integrate into the portfolio as one nears retirement, companies like BlackRock will also fund annuities. They aim to allocate 10% of your funds by the age 55 and take that share to nearly 1/3rd by retirement age. These annuities typically come with a fixed rate of return on the principle and these integrated 401k plans will become available starting in 2022.

FINSUM: Annuities can definitely bridge the gap for those skeptical that social security will fill their cup, but they still come with plenty of risk despite the ‘guaranteed’ income many might expect.

(New York)

Most advisors know and respect Wade Pfau, a retirement guru in our space. Well Wade has just offered a new take on annuities as part of a broader conversation on retirement income strategies. According to Pfau, “Annuities deserve an equal seat at the table with any other retirement income strategy … The whole idea that annuities mean giving up something is not true”. Pfau says that understanding a client’s retirement income preferences is key. For example, the total return approach is not for everyone, and the peace of mind of guaranteed income can be a big winner for certain clients.

FINSUM: Pfau’s one-size-does-not-fit-all view is a very apt one and it highlights how annuities could be the bedrock of a strategy for one client, and completely absent for another, with the majority being somewhere in between.