Updated Ibbotson study: Living benefits can increase retirement income potential / decrease income risk
Nationwide Financial launches online workbook to help advisors create a retirement income strategy for their clients
FOR IMMEDIATE RELEASE
April 8, 2010
Jeff Whetzel (614) 249-6354
Chad Green (614) 677-1679
Columbus, Ohio — Anyone planning for retirement wants to increase retirement income potential while decreasing income risk. An updated study by Ibbotson Associates finds that adding a variable annuity with a lifetime guaranteed minimum withdrawal benefit (GMWB), an optional rider at an additional cost, to a traditional retirement portfolio can increase retirement income potential while decreasing income risk. This new update of Ibbotson’s 2007 research paper “Retirement Portfolio and Variable Annuity with Guaranteed Minimum Withdrawal Benefit (VA+GMWB)” takes into account several new assumptions. Both the original study and the update were sponsored by Nationwide Financial Services, Inc.
“After the recent economic downturn and the changing market environment, many advisors questioned whether the findings of the 2007 study would still hold true,” said Eric Henderson, senior vice president of Individual Investments for Nationwide Financial. “We asked Ibbotson to investigate the results of its original paper with different assumptions about investment allocations, fees, and insurance products, and Ibbotson found that living benefits continue to be a valuable retirement income tool for advisors and their clients.”
Based on the feedback of advisors, the updated study takes into account several new assumptions that reflect the current state of the economy and the changing needs of clients:
More conservative investment allocations – Ibbotson found a VA+GMWB can help increase income potential and reduce income risk when using more conservative investment allocations that better represent the products available in the market. The 2007 study was performed with a Moderate Aggressive investment allocation (80 percent equities/20 percent bonds) inside the VA+GMWB. The new version of the study now highlights a Capital Appreciation investment allocation (70 percent equities/30 percent bonds) and a Balanced investment allocation (50 percent equities/50 percent bonds).
Varied fee assumptions – The updated study still assumes a 3 percent fee for the variable annuity portion and a 2 percent fee for the mutual funds, but Ibbotson also tested the impact of lower mutual fund fees. Assuming 1 percent for the mutual fund fees instead of 2 percent and keeping the variable annuity fee at 3 percent still showed a benefit to adding insurance products to a traditional investment portfolio.
Standalone Living Benefits –In addition, Ibbotson tested whether the findings held true when a standalone living benefit (SALB) was used in place of a VA+GMWB. The results confirmed that a SALB could help a client achieve more income potential and less income risk than traditional investment products alone.
SALB products give investors the opportunity to generate guaranteed retirement income by purchasing insurance around assets outside of an annuity. Nationwide launched two SALB products in 2009.
“Investors face several major risk factors when making investment decisions in retirement—financial market risk, inflation risk, income risk and longevity risk,” said Peng Chen, president of Ibbotson Associates. “Combining traditional investments with insurance products that guarantee income can help investors have a more comfortable retirement.”
IncomeInsight workbook now available online
Following the 2007 study by Ibbotson, The Retirement Income and Income Risk Workbook was created to help clients and their advisors evaluate whether a VA+GMWB strategy such as Nationwide’s IncomeInsight would complement their investment portfolio. Advisors now have the opportunity to use an interactive online version of the workbook that simplifies the process and only asks them to answer eight or nine questions about their clients.
The online workbook generates the client’s suggested Retirement Income Portfolio, which could include an allocation to a VA+GMWB. If a VA+GMWB is recommended, the online workbook would provide the asset allocation within the product. The online version also provides a printout of the completed workbook for the advisor or client’s records.
To learn more about the IncomeInsight strategy, the updated Ibbotson white paper and the new online version of the workbook, contact your wholesaler or sales center or contact our Income Planning Desk at 1-877-245-0763 Monday through Friday, 9 a.m. to 6 p.m. Eastern time, or by email at IPLNDESK@nationwide.com anytime.
“Developing a sound retirement income strategy for their clients is one of the most difficult challenges facing today’s advisors,” said Henderson. “By offering both print and online versions of our IncomeInsight workbook we hope to make the planning process a little easier and help advisors evaluate whether a VA+GMWB strategy is right for their clients.”
Nationwide, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by A.M. Best. The company provides a full range of personalized insurance and financial services, including auto insurance, motorcycle, boat, homeowners, life insurance, farm, commercial insurance, administrative services, annuities, mortgages, mutual funds, pensions, long-term savings plans and health and productivity services. For more information, visit www.nationwide.com.
Nationwide doesn't endorse or guarantee any investment model or strategy used by the investor and/or contract owner. Nationwide is not affiliated with any third party that may be authorized by the contract owner to direct allocations.
An annuity is a long-term, tax-deferred investment designed for retirement that will fluctuate in value. It allows you to create a fixed or variable stream of income through a process called annuitization and also provides a variable rate of return based on the performance of the underlying investments.
But, as with most things in life, an annuity does have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. A death benefit is available with most variable annuities and naturally, if you do take an early withdrawal, your death benefit and the cash value of the annuity contract will be reduced.
You should also know that an annuity contains guarantees and protections that are subject to the issuing insurance company’s ability to pay for them. But these guarantees don’t apply to any variable accounts that are subject to investment risk, including possible loss of your principal.
An annuity is a contract between you and an insurance company and it’s sold by prospectus. While it may take some time, you should read these documents. They describe risk factors, fees and charges that may apply to you. Variable annuities have fees and charges that include mortality and expense, administrative fees, contract fees, and the expense of the underlying investment options.
All guarantees and protections, where available are subject to the claims-paying ability of Nationwide Life Insurance Company. And while they do not guarantee the actual performance of the variable accounts, they do offer a level of protection against investment loss.
Nationwide Investment Services Corporation, member FINRA (www.FINRA.org). In MI only: Nationwide Investment Svcs. Corporation.
Ibbotson Associates, Inc., is a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. The Ibbotson name and logo are properties of Ibbotson. The study described herein is the proprietary property of Ibbotson, and may not be reproduced, in whole or in part, in any manner, without the prior written consent of Ibbotson. Ibbotson and its affiliates are not related to Nationwide and its affiliates.
Life insurance is issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio.
Nationwide, Nationwide Financial, the Nationwide framemark, Nationwide YourLife and On Your Side are service marks of Nationwide Mutual Insurance Company.