Wade Pfau is one of the foremost experts on retirement income planning. As professor and curriculum director for the Retirement Income Certified Professional designation program at American College of Financial Services in King of Prussia, PA as well as authoring three books and over sixty articles related to it, Wade is widely respected within his field. Today he will share how annuities (known by Wade as “protection++”) may help mitigate both stock market volatility and the risk of outliving retirement savings.
Pfau explores how registered index-linked annuities (RILAs) may serve as an ideal solution to help clients meet ongoing retirement spending goals. He details how RILAs offer contract-specific, inflation protection that helps buffer investment market swings as well as inflation’s effect on bond returns, while annuities with income riders provide additional protection by mitigating any impact from death and survivor benefits on overall retirement plans.
He suggests annuities offer superior retirement outcomes than investing solely in bonds, and provides strategies for advisors to use them effectively. His middle way strategy involves substituting some bonds in retirement savings accounts with RILA contracts before investing any remaining assets into fixed income annuities; other strategies discussed include creating a bond ladder or using hybrid annuities.
Pfau believes annuities can be used in various retirement income situations and believes the key step is helping clients recognize their preferred style of retirement income. He asserts this will allow them to select an effective solution and avoid unintended repercussions that might lead to an unhappy retirement experience.
As part of selecting an annuity suitable for their client, an advisor should carefully consider which risks an investor is comfortable taking and whether they plan to participate in markets. He states that those interested in investing must be mindful of volatile investments’ potential risks while having some flexibility with retirement savings plans; those comfortable taking longevity risk should look into solutions offering guaranteed lifetime income payments.
Another consideration when establishing a client’s retirement savings account is its size; annuities with living benefits often serve as the ideal solution in this category due to their dual use as growth and income strategies, helping investors meet both savings and income objectives for retirement savings and income goals.
He believes annuities can help enhance retirement plans, and that more research needs to be conducted into their effectiveness. He hopes future studies will focus on using hybrid annuities – offering both investment growth and steady streams of income – as a strategy.