Annuities can limit longevity risk, expert says

By integrating annuities into financial plans, advisers can take precautions against their clients' outliving their assets, according to a retirement income planning expert.
MAR 15, 2010
By integrating annuities into financial plans, advisers can take precautions against their clients’ outliving their assets, according to a retirement income planning expert. Farrell Dolan, principal of Farrell Dolan Associates, yesterday led a presentation entitled “Income Strategy for Advisers,” at the Insured Retirement Institute’s annual marketing conference in New York. There, he presented what he dubbed “The Four Box Strategy of Income Planning,” a model that divides retirees’ expenses into essential and discretionary categories and then splits up the assets to tackle both needs. The concern in income planning is that clients underestimate how long they’re going to live, Mr. Dolan said. “Life expectancy is the wrong number for a number of reasons,” he said, pointing out that a 65-year-old couple has a 50% chance of turning 85. Rather, it makes sense to plan as if a client will be around to see their mid to late 90s. The strategy splits income sources into two categories and divides costs into two other groups: discretionary and essential. Defined-benefit pensions, Social Security payments and annuity income would fall under lifetime income sources. They would be used to pay essential expenses, including food and housing. Meanwhile, income from assets — a 401(k), an IRA or taxable income — would cover discretionary expenses. “Using lifetime income sources allows clients to be less nervous about the income coming from their assets,” Mr. Dolan added.

Latest News

No succession plan? No worries. Just practice in place
No succession plan? No worries. Just practice in place

While industry statistics pointing to a succession crisis can cause alarm, advisor-owners should be free to consider a middle path between staying solo and catching the surging wave of M&A.

Research highlights growing need for personalized retirement solutions as investors age
Research highlights growing need for personalized retirement solutions as investors age

New joint research by T. Rowe Price, MIT, and Stanford University finds more diverse asset allocations among older participants.

Advisor moves: RIA Farther hails Q2 recruiting record, Raymond James nabs $300M team from Edward Jones
Advisor moves: RIA Farther hails Q2 recruiting record, Raymond James nabs $300M team from Edward Jones

With its asset pipeline bursting past $13 billion, Farther is looking to build more momentum with three new managing directors.

Insured Retirement Institute urges Labor Department to retain annuity safe harbor
Insured Retirement Institute urges Labor Department to retain annuity safe harbor

A Department of Labor proposal to scrap a regulatory provision under ERISA could create uncertainty for fiduciaries, the trade association argues.

LPL Financial sticking to its guns with retaining 90% of Commonwealth's financial advisors
LPL Financial sticking to its guns with retaining 90% of Commonwealth's financial advisors

"We continue to feel confident about our ability to capture 90%," LPL CEO Rich Steinmeier told analysts during the firm's 2nd quarter earnings call.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.