Tuesday, November 13, 2012

Starting the Income Guarantee (new Advisor Perspectives column)

My November column at Advisor Perspectives is now available. It is part 2 of a 3 part series on GLWB riders for variable annuities and newer SALB riders which can provide the same sorts of income guarantees for a portfolio of mutual funds and ETFs. Actually, writing on the subject gave me the opportunity to explore an issue in this column which I've been meaning to do for a while. That is to compare wealth accumulations to interest rates at the retirement date. 

There is a tendency for those who retire after a bull market run to have larger wealth and also benefit from high retirement date interest rates (which can allow for more income to be generated from bond ladders or SPIAs). But unfortunately, there is also a tendency for those who retire in a bear market to have less wealth and also face lower interest rates (meaning less potential income from bond ladders or SPIAs). It's a double whammy of bad news which greets today's retirees. This is what I explore in the this part 2 column.

I've finished a draft of part 3, and I'm pretty excited about that one, so please watch for it in December. 

Also, while I have your attention, the Bogleheads Forum is currently having a pretty interesting discussion about safe withdrawal rates, stemming from a post I made in May about basing asset return assumptions on current market conditions. In the discussion I'm characterized as being a supporter of the "constant inflation-adjusted withdrawal amount" strategy, which couldn't be further from the truth, as I explained in the video for yesterday's blog post.