Displaying items by tag: retirement

The 4% rule has become conventional wisdom when it comes to managing finances during retirement. As millions of people enter retirement over the next decade, it may be time to revise this rule, given higher inflation and longer lifespans.

Social Security benefits are typically equivalent to 40% of a retiree’s income. According to TIAA, retirees should consider pairing the 4% rule with an annuity to generate higher levels of income during retirement. This means that a retiree would convert some portion of their savings into an annuity.

In the first year, this is likely to boost income by up to 32% compared to just using the 4% rule. It also leads to more predictable income and shields retirees from market risk. More predictability can also help with more effective financial planning, leading to a more enjoyable retirement. 

Treasury Inflation Protection Securities (TIPS) are another method to increase guaranteed income, especially with a ladder across different maturities. It also protects retirees against inflation. 

Overall, the 4% rule should be reconsidered, especially in this era. It leads to less spending flexibility and should be augmented with other sources of income. It also doesn’t account for retirees’ individual circumstances, such as tax rates, risk profiles, and cash flow needs. 

Finsum: TIAA believes that the 4% rule should be reconsidered, especially for those retiring now. Retirees may need more income and should consider annuities or TIPS.

TIAA, a provider of lifetime financial solutions, has unveiled a new gauge aimed at showcasing the potential income augmentation for recent retirees who integrate an annuity strategy into their financial plans, in contrast to solely adhering to the 4% rule. The TIAA Annuity Paycheck Advantage gives retirees an idea of how their retirement package might differ with annuities rather than the strict 4% rule. 

According to TIAA's calculations, a 67-year-old retiree in 2024 could potentially witness a 32% upsurge in their initial retirement income by designating a third of their savings to lifetime income through the TIAA Traditional annuity, coupled with a 10-year guarantee period and withdrawing 4% from the remainder. Kourtney Gibson, TIAA's chief institutional client officer, described the TIAA Annuity Paycheck Advantage as a guiding principle for new retirees, offering the promise of elevated guaranteed payouts and heightened certainty regarding retirement expenditures. 

TIAA intends to annually revise its Annuity Paycheck Advantage index to reflect the contemporary influence of lifetime income on the financial well-being of Americans.

Finsum: While the 4% rule can be a good benchmark, a slightly more complicated strategy can lead to better retirement outcomes for clients

Annuity vendors experienced robust performance in Q1, with traditional variable annuity sales rising by 13% year-over-year to $14.5 billion, benefiting from strong equity market performance. Overall annuities amassing $113.5 billion in sales, marking a 21% surge compared to Q1 2023. Although falling slightly short of the Q4 2023 pinnacle, preliminary findings from LIMRA's U.S. Individual Annuity Sales Survey reveal this quarter's sales accounted for 84% of the total U.S. annuity market, the highest first-quarter performance since the 1980s. 

Bryan Hodgens, head of LIMRA research, attributed this trend to favorable economic conditions and heightened investor interest in securing retirement income guarantees, foreseeing continued resilience in annuity sales despite potential regulatory and economic challenges ahead. Variable annuities are expected to tack on another 10% through the end of the year.

Fixed-rate deferred annuities reached $48 billion, a 16% increase from Q1 2023, driving over 42% of the total annuity market. Fixed indexed annuity sales hit a record high of $29.3 billion, up by 27% year-over-year. Income annuity sales soared to a quarterly high, with SPIA sales reaching $4 billion and DIA sales reaching $1.1 billion, up by 19% and 35% respectively.

Finsum: Bond rates could be coming down as the Fed starts to ease rates and other retirement vehicles will become more attractive.

There is a subtle distinction between fee-based and fee-only advisors. Fee-only advisors exclusively offer financial advice but don’t sell any products with commissions. Fee-based advisors also mainly offer financial advice, but they may also sell other non-investment products with commissions, like insurance. This means that they cannot market themselves as being ‘fee-only’. 

Many advisors are moving to these models due to their simplicity, while there has been an increase in regulations around the fiduciary standard. In fact, the industry as a whole is seeing fewer broker-dealer accounts and growth in investment-advisory accounts. As a result, many products can now be bought in investment-advisory accounts without a commission, such as annuities and alternative investments. 

An important consideration for an advisor going independent is responsibility for compliance. This requires registering with the state regulator or the SEC if there are more than $100 million in assets. It also means responding to regulatory inquiries, developing a compliance program, and having a system to ensure compliance. 

This additional burden highlights the challenge of running an independent shop. Another is that there is less time for clients, especially during the initial stages. Even afterwards, the additional responsibilities will lead to less time and energy for client service, prospecting, marketing, etc. By choosing a fee-only or fee-based model, advisors can have less of a regulatory burden.

Finsum: Many advisors are moving towards a fee-only or fee-based model. The biggest reason is that it simplifies and reduces the compliance demands for advisors.

Lincoln Financial Group unveils the 1 Year S&P 500 Dual Trigger account, a pioneering addition to fixed-indexed annuities, offering market adaptability and full downside protection. This innovative option addresses consumer concerns about inflation, investment losses, and market volatility, catering to the 61% of consumers seeking growth and protection in their investments. 

Senior vice president of Annuity Product Management, Daniel Herr, anticipates robust sales approaching $100 billion by 2025, with the introduction of the 1 Year S&P 500 10% Daily Risk Control Trigger expanding growth opportunities.

As millions of Americans transition into retirement annually, Lincoln Financial remains committed to safeguarding their financial futures through diverse investment strategies. Senior vice president of Retirement Solutions Distribution, Tim Seifert, emphasizes the importance of new crediting strategies in empowering retirement planning. 

Finsum: Index annuity offerings offer a great alternative to fixed income for those in or nearing retirement.