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Renowned Economist Roger Ibbotson Shares Insights in SMS Interview

In an exclusive interview with Senior Market Sales® (SMS), renowned economist Roger Ibbotson shared groundbreaking insights that are challenging the traditional ways retirement planning professionals mitigate certain retirement risks.

Based on his extensive research, Ibbotson’s insights come at an important time, as everyone from insurance agents to financial advisors grapples with how to de-risk client portfolios in anticipation of a bear market.

Fixed Indexed Annuities as Alternatives to Bonds

The conventional approach to preserving wealth as individuals approach retirement has been to “de-risk” a portfolio by replacing equities with bonds. But Ibbotson’s research showed that uncapped fixed indexed annuities (FIAs) not only outperformed bonds in the past but also could beat bonds in the near future.

Despite  bonds’ fruitful run of 30 years, bond returns in the next several years will likely be insufficient to maintain clients’ income during retirement, Ibbotson said. And rising interest rates could result in capital losses and negative returns.

The Risks

Negative returns that occur early in a client’s retirement are far more damaging than market losses occurring later in retirement — this is called the sequence of returns risk. So, for clients facing the possibility of starting to make income withdrawals in an impending down market, retirement planning professionals must mitigate this risk.

And there’s also the issue of longevity risk. With increased life expectancies, today’s retirees risk spending all of their financial resources and outliving their financial capital.

Innovative FIAs Address Retiree Needs

While these issues are not brand new to the marketplace, the industry has created new, innovative solutions, and Ibbotson’s research backs that they’re formidable alternatives to traditional fixed income options such as bonds.

He explained in the interview that today’s FIAs are specifically designed to meet the needs of today’s retirees. They offer retirees credits when an index to which it’s linked, such as the S&P 500, goes up, while at the same time offering a floor, or protection from the risk they would have investing directly in the index through a mutual fund or exchange-traded fund (ETF). While some FIAs limit the upside potential with a cap, new FIAs have become available that are not capped and that are linked to low-volatility indices. Consumers have responded well to these “best of both worlds” benefits, pushing participation rates up.

In the SMS interview, Ibbotson also explained that distributions from FIAs are also more favorable than bonds. 

Even with all these benefits, Ibbotson doesn’t advocate that advisors go “all in” on FIAs. Uncapped FIAs may be a better bond alternative, not an equity replacement, for those clients who can take a long-term approach, he said. Rather than just using the traditional de-risking approach, today’s retirement planning professionals should consider combinations of stocks and bonds and fixed annuities to position clients for greater success.


Help Clients Attain the Retirement They Deserve

SMS is dedicated to connecting you to thought leadership that will help you serve your clients and build your business. Ibbotson’s research is important information for you to consider as you help clients reach their retirement goals, and it also presents myriad opportunities for your practice.

After you watch the interview, you can also rely on SMS for whatever you need to act on Ibbotson’s insights, whatever your familiarity with annuities:

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