How Guaranteed Income Drastically Changes Retirement Distribution

How Guaranteed Income Drastically Changes Retirement Distribution

As I’m writing this (January 2018), it’s hard to think about safety in a portfolio. The equity markets continue to rage with double-digit growth for the past several years. There seems to be a new stock market high just about every week, if not every day. 


But accumulation and income are two different animals. So they require two unique approaches to solve the client’s problem. 



Take a look at systematic contributions to a qualified plan like a 401(k) plan or a nonqualified systematic investment plan. As you’re making ongoing contributions, you buy more shares of the investment when the market (or, specifically, the investment) is down. As the value of the investment increases, you have purchased more shares and gain exponential value. The math phenomenon is called dollar cost averaging (DCA). By being disciplined and consistent, your average cost per share is less than the average paid per share, due to your ability to buy more when the investment is down.



If you are relying on systematic withdrawals during retirement, the opposite math phenomenon works against you. As you withdraw funds for income, you are liquidating more shares when the market corrects. Therefore, you lose more shares for when the market recovers. It multiplies your losses in a way. After the correction and recovery, you will have less units or shares than you would have with a steady market. 


Guaranteed Income

Guaranteed income options provide stability in retirement income planning. Having a protected baseline of income reduces the pressure the portfolio might otherwise take on during the distribution phase. With guaranteed income, there is no need to reduce your unit holdings in order to generate the same level of income; thus, you have a better chance of protecting your assets for the long haul. The less you have to take out in a down market keeps more of the shares, or units, in assets under management for growth, inflation protection and capital gains treatment. There is nothing worse than paying tax on a liquidation that has corrected but still has embedded gains. 


Take a look at using a guaranteed income tool to provide a floor for distribution planning. You client benefits not only from the peace of mind, but also the ability to make their assets last longer during retirement. 


Winning Strategy

Give guaranteed income options a look. By shifting the downside distribution risk to a guaranteed stream of income, the client can likely maintain their asset base longer in retirement. 


About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”