Erin Botsford has not always been a fan of annuities.
In fact, the president of The Botsford Group — and self-professed “former anti-annuity girl” — had little interest in the insurance products until she encountered a wholesaler selling the first variable annuity with a living benefit. That was in 1999 — at the height of dot-com frenzy. “It felt like the markets were getting heated up and frothy, so I proposed the annuity to clients,” she recalled.
Her timing was perfect. The dot-com bubble burst, but her clients' income benefit rose by 5% per year. Better yet, the product had a commuting feature, which allowed clients to move 90% to 95% of their principal value to another product.
Despite such success stories — and the Obama administration's desire to let plan sponsors include the insurance products in their 401(k) menus — annuities remain a much-debated topic among advisers. Indeed, many advisers remain wary of using annuities in retirement portfolios, preferring other strategies to help boost income.
In a panel discussion today at the
InvestmentNews' Retirement Income Summit, Jeffrey G. Cribbs, president of Chicago Wealth Management Inc., spoke of the advantages of the stock market — and specifically of keeping clients invested in the market through rocky stretches. He also championed the use of a long-term, simple moving average to decide when to increase or decrease allocation to the markets to help dodge large losses.
Such an approach can be hard to pull off, since a substantial decline in stock prices tends to spook investors. Often they flee the market and go into cash rather than considering which asset classes might fare well during a downturn. Market rebounds take time and require clients to stick around, Mr. Cribbs acknowledged.
“I wouldn't advocate trying to blindly develop a system like this, but you can use the moving average to get in and out of the market,” he said. “I think you can make more-intelligent decisions outside of emotion when you're thinking about moving assets from risk.”
Likewise, Charles J. Farrell, principal at Northstar Investment Advisors LLC, touts the use of more-traditional assets to generate retirement income. His preferences: bonds, laddered by maturities and
dividend-producing stocks.
During today's panel, Mr. Farrell noted that when buying income-producing assets, clients need to be aware that capital gains take a back seat to the generation of steady and growing income.
“You can provide a stable stream of income, even through other types of volatility,” Mr. Farrell said. “And you can get asset appreciation.”
For her part, Ms. Botsford sees the value in a full array of investments. But she's still using annuities to help meet clients' retirement income needs. She asks clients how much money think they'll need to cover their basic living needs and lifestyle, then funnels assets into the annuity bucket. The rest of the money is invested elsewhere, she said.
