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Annuities as an Asset Class for Fee-Based Advisors l 38 © Envestnet 2022 This provides a framework for choosing between annuity types. It is worthwhile to first investigate what the guaranteed income levels are with different annuities at the targeted retirement date if purchased today. The annuity offering the most guaranteed downside income then becomes the baseline. Then consider whether there are additional reasons to choose a different annuity with less guaranteed income but with attractive liquidity provisions, upside growth potential, or even a better death benefit. When comparing deferred annuities with income annuities, including a cash refund provision for the income annuity would provide the closest approximation to the standard death benefit of deferred annuities. The difference in worst-case guaranteed income levels from different annuities reflects the effective cost of these other features. Especially, with upside, if growth potential is achieved for deferred annuities, then step-ups may be realized, and lifetime income could be higher than the minimum guaranteed level. With the investment options and annuity features, how likely is it that the contract value can grow, and how important is it to the retiree to maintain the liquidity provided by the contract for those assets? About liquidity, we must remember that deferred annuities may not provide true liquidity if those assets are earmarked for income because excess distributions beyond the guaranteed amount will reduce the subsequent amount of guaranteed income provided. One application of deferred annuities, though, is to pay for the income protection to manage sequence risk and then if sequence is not realized in the early retirement years, one may decide to drop the guarantee from their plan. If a retiree values this liquidity and optionality about changing the decision later, then comparing the amount of guaranteed income lost to provide the liquidity (and upside) helps to quantify the tradeoff for the decision between income annuities and deferred variable annuities with income guarantees. To summarize, but with a reminder that there are exceptions to these trends, the variable annuity maintains a contract value that can rise and fall with the markets, creating more upside potential and downside risk than other annuities. The fixed index annuity offers upside potential and liquidity, but generally less upside potential than a variable annuity and less minimum guaranteed income than an income annuity. It falls in the middle. Income annuities do not offer liquidity or upside, but they are usually the most efficient way to secure a stream of protected lifetime income with the least amount of assets. The idea would be to then use other non-annuity assets as the source for liquidity and upside, which leads to the next section. Annuities as an Asset Class for Fee-Based Advisors l 38 © Envestnet 2022

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