The Next Generation of Income Guarantee Riders (Part 1)

My new column for October is now available at Advisor Perspectives. It is, "The Next Generation of Income Guarantee Riders: Part 1 – The Deferral Phase."  This project is actually turning out to be the equivalent of writing a full research paper. But rather than one long paper, it will be released in serialized form as my October, November, and December columns.

This column provides a deeper look at income guarantee riders. The motivation for digging into this again (as I wrote about GLWBs last year) is that earlier in the year, Aria Retirement Solutions created a new income guarantee rider that could be applied to a portfolio of mutual funds and ETFs. It is no longer necessary to buy a variable annuity to obtain access to such a rider. That is both esoteric and exciting at the same time.

As I worked on this initially to compare the features of Aria's RetireOne guarantee to Vanguard's GLWB (an apt comparison, since both riders are underwritten by the same insurance company), I ended up finding many things to look at in more depth.

This first column provides a look at how these guarantees would have fared historically in supporting a guaranteed benefit base over a 10-year deferral period. Since the guarantees are not inflation-adjusted, I find that the amount of downside protection provided by the guarantees may be less than people expect. As I summarize in the conclusion:

[Those] seeking to protect against a sequence of bad returns just before retirement will find that the guarantee still leaves them worse off in inflation-adjusted terms, especially as the rider fees hamper the ability of the contracted assets to grow faster than the unguaranteed alternative.

Please have a look!