December 11th, 2017

Little-Used Retirement Option Gets a Big Boost: Part I

Posted at 1:00 AM ET

rains_david-5-2015-sm2mparker-sm2David A. Rains, Managing Director and Healthcare and Life Specialty Leader and Michael R. Parker, Managing Director, Senior Business Development Broker


With the erosion of defined benefit pension plans and uncertainty around the future of Social Security, the current workforce must find new ways to responsibly manage their income into and through retirement.

But the environment in which they will do so is challenging. Guaranteed investment returns are at historic lows and projected to stay that way. The costs of aging are rising at an alarming rate, while post-retirement life spans are growing longer. How will current and future generations of seniors manage this evolving retirement landscape?

Insurance is currently the only available solution that adequately guarantees income once investment horizons shorten near retirement. The most prevalent insurance product used for this purpose is the variable annuity with guaranteed minimum withdrawal benefits. “Variable” is an industry term meaning that the annuity investment participates in market equity returns-critical for building maximum value for retirement. The guaranteed minimum withdrawal benefit is the insurance feature guaranteeing that, even if the underlying annuity investment should lose value, the amounts paid out in retirement will never be below a known amount.

So, if an obvious solution exists, why don’t more people take advantage of it? Simply put, these products are still early in their evolution and remain rather complex financial instruments. As they adapt to increasing consumerist pressures, variable annuities and other similar products will be simplified to create a more valuable tool to support retirement planning.


Source: Investment Company Institute. 2017 Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry.

This piece first appeared on BRINK.

Link to Part II >>

Link to Part III >>

Link to Part IV >>

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