Lincoln Financial this week launched a variable annuity built exclusively with target-date funds, which it said is the first such product on the market with a guaranteed income option.
In doing so, the company is banking on investors’ familiarity with TDFs, which are by far the most common default investment in 401(k)s and other defined-contribution plans. The product will test whether variable annuity buyers will seek out – or at least consider – those investments in an insurance wrapper, rather than a retirement plan.
The underlying investments in the variable annuity consist entirely of insurance-compatible shares of American Funds Target Date Retirement funds.
The VA, which Lincoln calls American Legacy Target Date Income, is not designed for retirement plans and is not tied to the recently passed SECURE Act.
“The vast majority of Americans saving for retirement are familiar with the target-date story,” said Dan Herr, vice president of annuity product development at Lincoln. “We’re leveraging the power of those [American Funds] target-date funds to provide a very strong income stream.”
The insurer is catering to both fee-based and commission-based advisers, with versions of the product that are compatible with either compensation design.
“The value proposition of the target-date fund is a very simple one, and it’s compelling because it’s designed for somebody in your age range,” said Tamiko Toland, head of annuity research at Cannex.
The basis for the new product “does actually make sense to me, and the idea that people are familiar with target-date funds is reasonable," she said. “They are pretty much ubiquitous, because they can be used as a QDIA.”
The income guarantees available as part of VAs have been the primary driver of sales for years, but more recently contract holders have bought “investment-only” VAs with a focus on accumulation, Ms. Toland said.
Working in favor of Lincoln’s new product is the fact that its cost is lower than those of other VAs the company currently offers.
Because target-date funds can effectively manage risk, the insurer put lower fees on the new VA, Mr. Herr said. “Both the base contract and the income rider are lower cost than what we offer on any of our other products,” he said.
The base contract fee for B shares is 110 basis points, compared with 130 bps for the standard B shares of the company’s other VAs. Similarly, the guaranteed-income rider carries a charge of 110 bps for a single-life contract, versus 125 bps on other products.
Meanwhile, the investment fees on the underlying target-date funds average 92 bps.
The income rider provides guaranteed income of 5.7% starting at age 65, and it has a guaranteed growth rate for the income base at a minimum of 6% per year, according to Lincoln.
Additionally, the new VA has a shorter horizon for surrender charges than other Lincoln products, at five years, compared to seven.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
