NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesMedium
A 60-year-old client is retiring next year and wishes to maximize their guaranteed lifetime income while minimizing investment risk. Their primary concern is outliving their savings. Which of the following retirement income strategies would be most appropriate for this client?
- AA variable annuity with a guaranteed lifetime withdrawal benefit (GLWB) rider.
- BInvesting solely in a diversified portfolio of exchange-traded funds (ETFs).
- CA portfolio heavily weighted towards growth stocks and emerging market bonds.
- DA systematic withdrawal plan from a diversified portfolio of mutual funds.
Show answer & explanationAnswer & explanation
Correct answer: A. A variable annuity with a guaranteed lifetime withdrawal benefit (GLWB) rider.
For a client concerned about outliving their savings and seeking guaranteed lifetime income with minimal investment risk, a variable annuity with a GLWB rider is highly appropriate. The GLWB rider provides a guaranteed income stream for life, even if the account value drops to zero, addressing longevity risk.
Why the other options are wrong
- B. Investing solely in ETFs does not provide guaranteed lifetime income and exposes the client to market fluctuations and longevity risk.
- C. This strategy is too aggressive and carries significant investment risk, unsuitable for a client prioritizing guaranteed income and minimal risk.
- D. A systematic withdrawal plan from a mutual fund portfolio does not guarantee income for life and is subject to market risk, potentially exhausting assets prematurely.
Guaranteed Lifetime Withdrawal Benefit (GLWB)
An optional rider on a variable annuity that guarantees a certain percentage of the initial investment can be withdrawn annually for life, even if the account value falls to zero.
- Addresses longevity risk (outliving savings).
- Provides a guaranteed income stream.
- Comes with additional fees.
- Withdrawal percentage varies by age.
Memory trick: Retirement income needs a plan: secure, flexible, or growth-focused.