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Annuities as an Asset Class for Fee-Based Advisors l 49 © Envestnet 2022 Action Plan For retirees who view annuities as a bond replacement and whose overall spending goal implies a lower withdrawal rate than the annuity payout rate, partial annuity strategies can increase success rates, raise the proportion of lifetime spending goals that can be covered, and improve legacy outcomes especially for those living beyond life expectancy, relative to an investments-only strategy. The mortality credits provided through risk pooling provide relief for the distribution needs from non-annuity assets, giving them more potential to grow. But not everyone will need or want an annuity. Some retirees may already have plenty of lifetime annuity income through Social Security and traditional defined-benefit pensions. The action items for determining whether and how to include annuities within your retirement income plan include: Assess whether your characteristics and preferences are aligned with obtaining greater value from an annuity. • Your RISA Profile suggests that your preferences align with income protection and risk wrap strategies. • You have an income gap in which there is not enough reliable income to cover your longevity expenses. • Your risk tolerance limits your comfort with stocks in retirement. The case for annuities is stronger for those with a lower stock allocation. • You have greater longevity risk aversion. Concerns about outliving retirement assets lead to more relative benefits from annuities as the alternative is to spend even less from investments. • You view annuities as a replacement for bonds and are comfortable using a higher stock allocation with remaining investment assets. • You seek protection from making behavioral mistakes with your investment portfolio, you lack self-control for spending, or you find investments intimidating. Annuities may also protect less financially savvy family members. Learn about the features and mechanics of different annuities. • When comparing annuities for lifetime income, it is essential to first focus on the minimum guaranteed withdrawals for your purchase age and anticipated income starting age. • Consider your preferences for tradeoffs between upside and downside, the desire for liquidity, and the types of asset allocations you would use both with and without income protections. • Determine whether there may be an annuity option with other attractive features that make it worth accepting even if it does not have the strongest downside guarantees. Determine the income gap you are seeking to fill and decide whether the amount of assets needed to fill that gap with annuities is reasonable. Decide on a premium amount. Take your time with making this purchase decision. • Discuss the decision with family members to coordinate both with the spouse and with any potential heirs. • Work with someone who is familiar with the vast array of available annuities and understands which work better for different purposes, ages, and deferral periods. • Make sure you understand how the annuity works with respect to its various features and fees. • Understand how the annuity taxes work (see Chapter 10). • Only add living or death benefits that you intend to use. • Consider diversifying purchases between different companies and even different types of annuities. © Envestnet 2022

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