COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | RETIREMENT | TAX PLANNING
A RILA-Roth Combo Can Solve Longevity Risk
‘ Diversification ’ in retirement goes well beyond asset class , Allianz argues .
By Jennifer Lea Reed
MIDDLE-CLASS AMERICANS ARE ENJOYing the same trends as the wealthy when it comes to living a longer life . Unfortunately , that also means they run a much higher risk of depleting their assets long before they die .
For these clients , advisors have to be particularly creative when it comes to stretching modest portfolios well beyond their dollars . But this is more than possible with the right blend of investment vehicles , according to Schyler Adams , CFP and director of advanced strategies and planning platforms for Allianz Life Insurance .
Adams presented a different way of thinking about investment vehicles and unwinding assets during a webinar in mid-December called , “ Decumulation Diversification : Draw-Down Retirement Strategies To Help Make The Most Of Hard-Earned Assets Accumulated .” The webinar was produced by Financial Advisor magazine and sponsored by Allianz Life .
“ Ideally ,” Adams said , “ a decumulation strategy would keep income in step with inflation and reduce taxes as much as possible in order to retain or even improve the value of what was accumulated .” Diversifying the portfolio by vehicle , not asset class , can achieve these objectives , he added .
Adams illustrated how one or more shifts can accomplish that with a case study :
Take a married couple , both 58 , both of whom make $ 100,000 a year before taxes , and both of whom want to retire at 65 . One has a life expectancy of 92 while the other ’ s is 94 .
Once retired , they estimate annual expenses of $ 115,000 in today ’ s terms . They will wait until 70 to tap Social Security , and they ’ re assuming that inflation will be 3 % over the long haul .
For assets , they have $ 150,000 in taxable investments , two 401 ( k ) s with a total worth of $ 850,000 and a paid-off house worth $ 500,000 . With no liabilities , their total net worth is $ 1.5 million . Their combined taxable and nontaxable investments are earning 5.46 %, and their assumed tax rates are the current marginal federal tax bracket and a 6 % state income tax rate .
When the details were run through a Monte Carlo simulator , they revealed the frightening reality many Americans face , Adams said .
“ When we look at the current scenario given these inputs , we can see that our clients currently have just a 59 % probability of success of funding all of their expenses throughout their retirement ,” he said .
Anything below a 70 % to 75 % probability of success could require clients to adjust their plan in more than one way if they want more acceptable odds , he said . Therefore , solving for this shortfall can be a two- , three- or four-step process .
But it is possible to “ fix ” a client ’ s portfolio so they can enter
54 | FINANCIAL ADVISOR MAGAZINE | MARCH 2023 WWW . FA-MAG . COM