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What The Experts Say About Using Variable Annuities For A Guaranteed Income

When you’re approximately 10-years from retirement withdrawals start considering a variable annuity with a guaranteed income rider. This will provide a minimum 5% guaranteed withdrawal for the rest of your life, while staying 100% invested in the world's great companies (equity mutual funds). When you pass away, the income continues guaranteed for your spouse. When you both pass your children inherit the account balance.

Resources

Quotes

  • "I know of only two ways of coping with equity volatility during retirement withdrawals:

    1. Abiding faith in the historical record, in the greatness of free-market democratic capitalism.

    2. The other method is what the variable annuity industry is pleased to call 'living benefits'.”

    ―Nick Murray, On Panic, Faith, and the Determined Primitive


  • "Insurance companies promise that annuitants won't run out of income, ever! When there is a living benefit, an annuitant may run out of cash but not out of income.” ―Richard Hoe, ChFC, CLU, AEP. From the article "The Better IRA" in The Investment Edge magazine.

From the article: Annuities Are Coming in New Shapes and Sizes

...once you’re retired, by establishing a reliable lifetime income stream to supplement Social Security.

The major stock market dip in early April underscored a major benefit of annuities’ income guarantees: peace of mind. “We had to talk a lot of people out of pulling money out of the market,” says Howard Sharfman, at NFP Insurance Solutions. “But nobody who has guaranteed income called us to have that discussion.”

There are other benefits, too. “You can take more risk by holding more in stocks because you have the income in place with the annuity,” Elder says. “You don’t need to provision as much money for later in life because you know you have an income floor. So you can use the money earlier.”

Variable annuity is the best choice because it doesn’t cap upside and allows you to potentially build more assets.


Variable Annuity Experts

John Huggard1, J.D., CFP, CLU, ChFC, is a sought after expert witness in securities cases and a nationally recognized speaker on the topic of variable annuities.

Quotes

“Living Benefits are not new variable annuities but riders available with existing variable annuities. Often, only a box on the application nee be checked to obtain a specific living Benefit. Living benefit riders provide long-term investors with:

  • An opportunity to obtain stock market gaines if the market goes up.

  • An opportunity to obtain an upward ratcheting lifetime stream of income regardless of the stock market's future direction without annuitization.

  • The ability to avoid the 'longevity problem' for both spouses.

  • The ability to avoid the 'sequence of return' trap.

  • The advantages of obtaining basic variable annuity benefits (commission-free investing, no transaction cots, death benefit, etc.).”

―John Huggard, page 8 from his lecture notes, "Understanding the New Variable Annuity Living Benefit Riders" (January 8, 2007).

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Moshe Arye Milesky2 is a tenured professor at York University. He has a Ph.D. in Finance, a Master of Arts in Mathematics and cum laude from Yeshiva University. He is a lifetime Fellow of the Fields Institute for Research in Mathematical Sciences.

Quotes

  • “I purchased a variable annuity with a guaranteed living benefit and allocated 100% to stocks.” -Moshe Milevsky, End Notes from the book In Defense of Annuities (2021).

  • “... with a guaranteed and predictable lifetime of income that can't be outlived” -Moshe Milevsky, Section IV from the book In Defense of Annuities (2021).

  • “A living benefit is paid to the annuitant for as long as they live and ceases upon death.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “It protects against the risk of living beyond, even far beyond, life expectancy - without surrendering either upside potential of liquidity of the underlying portfolio.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “The income is guaranteed to never decline for the remaining life of the annuitant. If the underlying investment portfolio ever reaches zero, the guaranteed income will continue so long as the annuitant or, for a joint product, one member of the couple is still alive. Whatever remains in the account at the time of death goes to the heirs.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “Fees and periodic withdrawals are deducted from the VA account as long as there are funds available. But if those periodic withdrawals every fully deplete this account, the insurance component is triggered to fulfill the remaining withdrawals for the lifetime of the investor.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “... to provide an assortment of lifetime income guarantees meant to protect the policyholder against longevity risk as well as what the industry has coined as ‘sequence-of-returns risk’, which refers to the chance that a retirement portfolio, from which cash is being withdrawn, suffers early losses, magnified by the retiree living longer than average. All you need is a bear market at the wrong time, and the sustainability of your income can be cut dramatically.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “By promising a lifetime of retirement income, insurance companies are taking on the above-noted longevity risk.” -Moshe Milevsky, Section V from the book In Defense of Annuities (2021).

  • “Invest aggressively, diversify, exposure to equities, and wrap some protection around it. Optimize your variable annuity by having an aggressive allocation and protecting it with a lifetime income.” -Moshe Milevsky, from his Annuities for a Biological Age webinar (2020).

  1. He received his undergraduate degree and law degree from the University of North Carolina at Chapel Hill and his master’s degree from Duke University. He is now a retired university professor who taught law and finance courses at North Carolina State University for thirty-two years. He was a member of the University’s Academy of Outstanding Teachers and was named an Alumni Distinguished Professor in 1994. He continues to write and do research at the University on topics that deal with variable annuities. John is currently the senior member of a Raleigh, North Carolina law firm that was founded in 1975. He is a board certified specialist in estate planning and probate law and limits his practice to consultation in the areas of estate planning and financial litigation. John is the author of several financial magazine articles and books. His two most recent books discuss investing with variable annuities and debunking the myths surrounding variable annuities. ↩

  2. Over the last 25 years he has published 15 books and 60 peer-reviewed scholarly articles on wealth and risk management. He currently serves as a member of the editorial boards for the Journal of Pension Economics and Finance (JPEF), and Insurance: Mathematics and Economics (IME). ↩