Why It’s Time for RIAs to Rethink Protected Income in Retirement

Today’s clients can look forward to a retirement that may last 30 years or more. They’re facing real challenges to make their income last over this longer horizon, including a magnified impact from inflation and healthcare costs. With these Baby Boomers feeling risk-averse as they enter retirement at a rate of 10,000 per day,¹ protected income solutions are seeing a resurgence in popularity. It’s no wonder that 73% of clients like the idea of adding a source of protected monthly income in addition to social security to their retirement income plan.

However, when these clients bring up lifetime income solutions to RIAs wary of lifetime income solutions based on past associations, will they go home disappointed? Alternatively, will their advisors take a look at the new, lower-costs solutions available and give protected income another chance?

Cue the entrance of The Alliance for Lifetime Income in 2018. This educational industry group has renewed discussion about the need for protected lifetime income in retirement. A survey performed by Wealth Advisor in August of 2018 showed a 57% increase in interest in annuities among advisors whose clients are concerned about stock market volatility. Perhaps that’s why, as the investment research firm Morningstar notes, there was $2 trillion invested in variable annuity products by the end of 2017.³

Should RIAs reconsider the role of annuities with optional benefits in their clients’ retirement income portfolios? With benefits including protected monthly income for life over longer retirements and market upside potential with levels of downside protection, the range of annuities available today may deserve a second look.

How Are You Preparing Your Clients to Replace their Paychecks?

Overspending in retirement may be every client’s worst fear. Yet clients may also be paralyzed into underspending to avoid this scenario. Unsurprisingly, nearly 70% of consumers approaching retirement want their advisor to help them estimate how many years their assets will last.

As a financial professional, even if you can explain your investment strategies you must also be able to address clients’ investing concerns.

Because while the next generation of retirees clearly wants the upside available via the stock market, they are also seeking diversification from products designed to provide principal protection and lifetime income.

Why Savvy RIAs See Protected Income as a Key Portfolio Strategy

So what role can these solutions play in your clients’ portfolios?

  • Protected monthly income for life – One benefit of allocating a portion of your clients’ retirement funds into an income annuity is the opportunity to provide an additional source of lifetime income. Clients can then more easily forecast their income and budget in retirement, leading to greater confidence. How is the allocation made? Typically, either a single lump sum of money or through flexible premium payments over time and which of those are chosen will depend on the product selected. 

  • Tax savings – Tax-sensitive clients can grow their savings and legally defer taxes this way. Compared to 401(k)s and IRAs, tax-deferred annuities don’t have an annual contribution limit. For instance, Investment-Only Variable Annuities, or IOVAs, is a tax-deferred investment solution that can help your clients set aside taxable assets beyond a 401(k). Also, a Fixed Index Annuity is one where the potential growth is correlated to a fixed interest rate or the performance of a stock market index (i.e., S&P500, NYSE, Nasdaq, and so on).

  • Growth with protection against market ups and downs – If you polled your clients, virtually every single one would ideally love a guaranteed income he or she couldn’t outlive. Yet fears over market volatility may cause them to sit on the sidelines, which could prove problematic if they expect to have 30 years or more of retirement income. This is where lifetime income annuity solutions come in. For instance, Buffer Annuities can help protect investors against the possibility of market loss, much as indexed annuities do. The difference is they also offer upside potential in a more customized way, through caps on credited interest.

  • Flexible strategies for growth potential – A range of investment strategies are possible within the protected income umbrella. To name a few: Variable annuities, which typically offer a variety of subaccounts and asset types to help meet your clients’ retirement income goals. The account value of this annuity type—and its income potential—is determined by both investment performance and premium allocation. Lastly, a Guaranteed Income Rider— available with an annuity for an additional cost —helps your client lock in their income gains through the duration of their payout.  Guarantees are subject to the claims-paying ability of the issuer.

With All of the Upside Made Possible By Protected Income Strategies —Why Would an RIA Object?

There are a variety of myths that have been perpetuated about annuities, often by those with a financial interest in discrediting them in favor of other investment vehicles they offer.

Some of these myths are the subject of a brief article titled "Myths, Misunderstandings, and Misperceptions: Setting the Record Straight on Annuities.  

It covers objections such as:

  • "Annuities are high-commission products."

  • "It's hard for RIAs to integrate annuities into their business."

  • "Annuities are just too complicated and time-consuming."

If you’ve ever felt any of these concerns got in the way of you offering annuities to your clients—and benefitting your practice—you absolutely want to read this article.

Of course, few advisors would recommend their clients put all of their savings or retirement funds into annuities. Instead, they can be a complement to your overall investment strategy for added protection, diversification, and opportunity to help meet your clients’ retirement income goals.

This article will help RIAs, who may want to think about implementing annuities, as a part of their overall strategy for helping their clients. The annuity portion can lock in a protected income stream and help reduce the overall risk in your client’s portfolio.

The first step in understanding this strategy is to download "Myths, Misunderstandings, and Misperceptions: Setting the Record Straight on Annuities right here at no charge, courtesy of our friends at Lincoln Financial Group.

Don’t Go It Alone: Your Trusted Partner in the World of Annuities

Lincoln Financial Group has a long history of leadership in the annuity market. They work side-by-side with RIAs to create customized annuity solutions.

With the rise in AI (artificial intelligence) and automation, advisors must be more holistic than ever, which means able to offer total solutions for their clients' retirement income needs.

That’s what partnering with a firm like Lincoln Financial empowers advisors to do. Their industry-leading annuity platform includes:

  • Vetted annuity and insurance products

  • An insurance-licensed support desk

  • Interactive retirement income planning tools

  • Total support for RIAs in their network

Under the Section 1035 Exchange Law, the IRS will let your clients exchange one annuity for another one, income tax-free. The requirement is that the funds must pass directly from the old annuity contract to the new annuity contract – and it's essential to determine how the new contract would provide a better solution for a customer. 

They can also support advisors to utilize 1035 exchanges, where the advisor gains new assets by helping clients replace insurance products with others based on a review of their situation against a new product.

It means that even if your clients currently have annuities in place, you can help them find other possible solutions if it’s no longer the right fit. And again, Lincoln Financial Group has an entire team and platform ready to help you.

So what’s the next step?

You can begin by downloading this featured article, "Myths, Misunderstandings, and Misperceptions: Setting the Record Straight on Annuities, which provides more information. 

It also contains simple steps for how to get started with Lincoln Financial Group—to begin offering more annuity products to your clients.

For financial professional use only. Not for use with the public.

Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice. Please consult an independent advisor as to any tax, accounting or legal statements made herein.

Variable annuities are long-term investment products designed for retirement purposes and are subject to market fluctuation, investment risk, and possible loss of principal. Variable annuities contain both investment and insurance components and have fees and charges, including mortality and expense, administrative, and advisory fees. Optional features are available for an additional charge.

Variable products are sold by prospectuses, which contain the investment objectives, risks, and charges and expenses of the variable product and its underlying investment options. Read carefully before investing.

Lincoln annuities are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and contracts sold in New York are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY; distributed by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.

All contract and rider guarantees, including those for optional benefits, fixed subaccount crediting rates, or annuity payout rates, are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer or insurance agency from which this annuity is purchased, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.

There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.²

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations.


1 LIMRA, Retirement Income Reference Book, 2018
2 Greenwald & Associates, 2018 Guaranteed Lifetime Income Study.
3 https://www.myirionline.org/newsroom/newsroom-detail-view/iri-issues-fourth-quarter-2017-annuity-sales-report
4 LIMRA, Dear Advisor, 2017



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