FANG has changed the game!
The world renowned consultants at McKinsey put it this way:
“For the past decade, the life insurance and annuities industry has struggled to find growth. The future of the life insurance industry will depend on adaptation.
If you missed Part 1 of The Wealth Manager’s Perfect Storm of Risk, click here.
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.
In Part 1 of this blog series about risk, we talked about the “Perfect Storm” created by 3 intensifying risks that will impact your aging clientele’s retirement outcome:
- The 8-Year-Old Bull Market
- The End of the Bond Bull Market
- The Hidden Risks of Longevity
The bull market marked its 8th anniversary this year. But as the Wall Street Journal reported March 8th, “Stocks Have Tripled Since Crisis, but Low Rates Are Still Squeezing Savers.”
Retirees have reacted to low interest rates by opting for higher-risk investment strategies, exposing themselves to volatility and sequence risk in an effort to make sure they don’t outlive their assets.
This week the Fed began to ratchet up rates. This might mark the end of the bull market in bonds. The Fed’s actions expose those retirees’ remaining fixed allocations to risks associated with rising rates.
Dr. Wade Pfau’s research helps us understand that 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. He adds:
“Advisors with aversion to income annuities think carefully about whether their advice is serving the best interest of their clients.”
– Dr. Wade D. Pfau, Retirement Income Showdown: Risk Pooling vs. Risk Premium, 2016 Professor of Retirement Income at The American College
Check out the complete paper here.