NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesMedium
A client, aged 40, is concerned about outliving their retirement savings and wants to ensure a guaranteed income stream throughout their retirement years. They are willing to allocate a portion of their portfolio to achieve this guarantee. Which investment product would be MOST appropriate for this specific goal?
- AGrowth-oriented mutual fund.
- BHigh-yield corporate bond fund.
- CVariable annuity with a guaranteed minimum withdrawal benefit (GMWB).
- DExchange-Traded Fund (ETF) tracking a broad market index.
Show answer & explanationAnswer & explanation
Correct answer: C. Variable annuity with a guaranteed minimum withdrawal benefit (GMWB).
A variable annuity with a Guaranteed Minimum Withdrawal Benefit (GMWB) is designed to provide a guaranteed income stream for life, addressing the client's concern about outliving their savings, regardless of market performance.
Why the other options are wrong
- A. A growth-oriented mutual fund does not offer a guaranteed income stream.
- B. A high-yield corporate bond fund provides income but does not guarantee it for life and carries higher credit risk.
- D. An ETF tracks an index and does not offer any guaranteed income stream.
Guaranteed Minimum Withdrawal Benefit (GMWB)
A rider on a variable annuity that guarantees the annuity holder can withdraw a specified percentage of their initial investment (or highest account value) each year for life, even if the account value drops to zero due to market performance.
- Provides a guaranteed income stream for life.
- Protects against market downturns impacting income.
- Typically comes with additional fees.
Memory trick: GMWB: Get My Withdrawal, Baby!