A new study from the Insured Retirement Institute (IRI) shows how tax-deferred investments in variable annuities can produce higher retirement income at the same risk level as other investments.
The report, called Optimizing Tax-Deferred Investing and Retirement Income Using Variable Annuities, drew four major conclusions.
1. Variable annuities offer significant tax advantages relative to mutual funds over longer holding periods, even after accounting for lower taxes on dividends and long-term capital gains.
2. The tax advantages of variable annuities are amplified when holding tax-inefficient investment options, such as bond funds and high-turnover equity open-end funds.
3. When income is generated from a variable annuity using annuitization, the investor obtains meaningfully higher income after a deferred investment period than what can be safely obtained from a mutual fund portfolio.
4. By maximizing income using a deferral and annuitization strategy for a portion of client assets, more aggressive investment of the remaining assets is possible, driving higher overall asset growth over time.
This is the first in a series of publications from IRI on the basics of annuities. The Annuity Basics series of publications will show the value of annuities for maximizing retirement income and protecting against systemic risks such as market downturns and inflation. Each report will focus on a different feature or benefit of annuities.
“Many financial professionals are unfamiliar with annuities, and often those who are somewhat or even very knowledgeable are only familiar with the annuities they tend to use most,” Frank O’Connor, vice president of research said. “The advisor who frequently uses variable annuities may know much less about fixed indexed annuities, and vice versa. Annuity Basics will dissect the features and benefits of each type of annuity and provide clear, concise information using illustrations, infographics, and plain English descriptions.”
The Annuity Basics series will address topics such as guaranteed lifetime income benefits on variable and fixed indexed annuities, death benefits, income strategies using annuitization, long-term care riders, registered index-linked annuities and index strategies, and non-qualified annuity titling.