Retirement planning experts testing the viability of traditional methods of decumulation, like the 4% rule, often uncover weaknesses. Take Michael Finke, PhD’s “The 4 Percent Rule Is Not Safe in a Low-Yield World,” from 2013, for example. It isn’t surprising. When treasury yields are high, “safety” may be easier to find. After all, markets are dynamic. Even William Bengen, the author of the seminal safe withdrawal rate study, believes the decumulation method is due for a revision.
In July, Financial Advisor ran an article about our changing retirement planning landscape, and what a safe decumulation strategy looks like in a world of relatively high inflation and economic volatility. Among the experts polled for their opinions was George P. Webb, CEO of Pension & Wealth Management Advisors. You may recall that we partnered with George to provide his clients with portfolio income insurance via our own contingent deferred annuity. Here’s the quote:
Some companies have developed innovative products and services to boost clients’ retirement preparedness. For instance, RetireOne, an insurance product provider, has collaborated with Pension & Wealth Management Advisors, a registered investment advisor in Waltham, Mass., on a strategy called the Pension & Wealth Management Advisors’ Portfolio Income Insurance Program. The product is a model portfolio that comes in the wrapper of a contingent deferred annuity. It provides downside protection, but the company says it’s also unlike an annuity because the portfolio does not come under the administration of an insurance company.
“If you have a risk-averse client, staying in cash may provide peace of mind, but it will ultimately disadvantage them over time,” says George P. Webb, CEO of Pension & Wealth Management Advisors. “By setting a floor of income with the contingent deferred annuity, we have an innovative tool for boosting clients’ confidence and getting them out of cash. Further, we can transfer market risk in their portfolios to an insurance company without moving the asset.”
One quick note about a possible misconception in the article: a contingent deferred annuity does not provide downside protection to the asset, or transfer market risk. Rather, it protects the income generated from the underlying asset.
