Balancing Predictability and Volatility

Not surprisingly, the simulations showed a range of outcomes and trade-offs, highlighting the need to understand clients' risk-return profiles, says study co-author Denning.

"It's important to be needs-based in your selling approach," he says. "You need to work with that retiree, understand their needs and expectations, and then look across and see which product or product packages make the most sense for them."

Several findings stood out, says Denning. One result was the inability of a GMWB (guaranteed monthly withdrawal benefit) income payment to keep pace with inflation.

As Denning notes, many financial institutions heavily promote the GMWB features. Under the simulation's assumptions, however, the feature didn't hold up as advertised. "As you can see from our conclusions, after about 10 years, your ability to keep pace with inflation (with GMWB) is extremely limited, is almost non-existent," says Denning. "I think that was one of the biggest surprises we've heard back from advisors on this as well."

Another result dispels the notion that annuitization has a negative impact on clients' ability to transfer wealth. "I think our study also points out that if you are expected to live a long time in retirement, you actually benefit from partial annuitization, because it's a more efficient way of generating income," says Denning. "The part of your portfolio that you don't need for income, you can leave it untouched for 20, 30, 40 years, and allow it to grow in the market.

"I think intellectually most advisors assume that if you take money off the table for an income annuity, you are reducing your chance for wealth transfer long-term," he explains." And I think we prove out that's not the case."

"Four Strategies for Retiring Clients" is available online at:

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