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Retirement Alpha

Retirement Alpha Lowers Stress

Retirement Alpha is the value you add to your clients through retirement planning, strategy, tactics and products.

It reflects the management of longevity risk with guaranteed lifetime income.

One of our biggest jobs as wealth managers is to protect our clients from unnecessary risk. The tools we use to diversify, allocate, rebalance and tax harvest have radically evolved in recent years.

There is a gathering Perfect Storm of Risk that could cause your clients major stress and heartburn.

  • The 8-Year-Old Bull Market
  • The End of the Bond Bull Market
  • The Hidden Risks of Longevity

Longevity risk is one of the key risks that can be managed effectively by an annuity. Investment and sequence risks are also alleviated through the more conservative investing approach for the underlying annuitized assets.”1

– Dr. Wade D. Pfau

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Longevity Matters

Longevity impacts future income shortfalls and the magnitude of the shortfalls. “The volatility of your longevity is on the same magnitude as the stock market.”2

– Dr. Moshe Milevsky

Probability vs. Safety

Systematic withdrawal plans do not obviously outperform annuities as a way to meet retirement spending goals as well as providing support for contingencies and legacy, said Dr. Pfau.3

Where do annuities fit?

Dr. Pfau further clarifies where annuities fit in the retirement allocation:

“My research focused on how to best meet two competing financial objectives for retirement: satisfying lifetime spending goals and preserving financial assets. Efficient allocations will do a better job at meeting both of the lifetime objectives.

My simulations showed that the efficient frontier for retirement income generally consists of combinations of stocks and income annuities. Perhaps surprisingly, bond funds did not make it to the frontier; they do not serve a useful role in the optimal retirement income portfolio.”4

This graph illustrates an Efficient Income Frontier. Adding more annuity to a retirement allocation maximizes income. Adding less annuity maximizes legacy potential.

Annuities Evolving

Advisors nationwide are discovering that one option for managing longevity risk is to use a fixed indexed annuity with lifetime income rider. The newest generation of these products offers an ideal solution to longevity risk. It also represents an excellent fixed income alternative that also manages sequence and interest rate risks.

  1. Why Bond Funds Don’t Belong in Retirement Portfolios,” Dr. Wade D. Pfau. 2015.
  2. IMCA Advanced Wealth Management Conference, Dr. Moshe Milevsky. 2015.
  3. “Retirement Income Showdown: Risk Pooling vs. Risk Premium,” Dr. Wade D. Pfau. 2016.
  4. Why Bond Funds Don’t Belong in Retirement Portfolios,” Dr. Wade D. Pfau. 2015.