New Product Feature

A New Approach to Retirement Income: Low-Cost Investment-Only Variable Annuities

Can Generate More Income, Accumulate More Wealth and Leave Larger Legacy

September 16, 2014- 7:28am EST – LOUISVILLE, Ky.–(BUSINESS WIRE)–Jefferson National and Wade Pfau, Ph.D., CFA, Retirement Income Professor at The American College of Financial Services, today released a whitepaper to help RIAs and fee-based advisors better understand when a guaranteed variable annuity (VA) is worth the cost of the additional protection it provides versus when an unguaranteed, low-cost Investment-Only VA (IOVA) may, in some instances, provide greater wealth accumulation to generate greater retirement income or legacy potential.

The whitepaper, “A New Approach to Retirement Income: Next Gen vs Traditional VAs,” concludes that just as the power of tax-deferred compounding can grow wealth, its corollary is that the drag of compounding fees can reduce wealth. There can be more efficient ways for clients to generate income, obtain upside potential and downside protection, than by using a guaranteed VA for certain market cycles and/or client profiles.

The Power of Tax Deferral…

This new whitepaper also concludes that the primary advantage to the variable annuity structure is the power of tax deferral. Studies show that tax deferral can increase performance potential by 100 to 200 bps—without increasing risk.1 In order to maximize the true value of tax deferral, a variable annuity must be low-cost and it must include the fund choices advisors need to implement an effective management strategy— such as the new generation of Investment-Only VAs.

Additional whitepaper findings are based on running 5,000 Monte Carlo Simulations, using more than eight decades of market data to test a variety of investor scenarios:

  • In the majority of scenarios, the low-cost Investment-Only VA is likely to generate income comparable to the Guaranteed VA.
  • In the majority of cases , the lower costs of the Investment-Only VA reduce the risk of depleting wealth—and increase chances of accumulating more wealth—which might lead to more reliable income and a larger ending balance than the Guaranteed VA.
  • The Guaranteed VA will provide guaranteed income, even if the account balance falls to zero.
  • The high asset-based fees of the Guaranteed VA are likely to erode returns on underlying assets and drive the ending balance to zero more quickly.

“Collaborating with Jefferson National to research this next generation of variable annuities has been an excellent opportunity to study the industry’s most recent innovations,” says Wade Pfau, Ph.D., CFA, a Professor of Retirement Income in the new Ph.D. program for Financial and Retirement Planning at The American College. “Having published over 40 research articles on retirement income, it’s clear that there is no ‘one size fits all’ approach to retirement income—but this study shows how low-cost Investment-Only VAs can offer reliable income with greater upside potential for investors and meet the unique needs of today’s RIAs and fee-based advisors.”

Guaranteed income products have evolved significantly. In the years since the financial crisis, historic low yields and ongoing volatility has made it increasingly challenging for insurers to manage the risk on their balance sheet, making the guarantees offered by traditional VAs more costly to provide and more expensive for consumers to purchase.

Generating reliable retirement income has become more challenging for advisors as each client's situation is unique, market dynamics have become more complex, and the landscape for variable annuities has changed

“A New Approach to Retirement Income: Next Gen vs Traditional VAs,” uses a proprietary model and primary research developed by Pfau to compare low-cost IOVAs vs variable annuities with a Guaranteed Living Withdrawal Benefit in a variety of investor scenarios, to determine probabilities for income generated, wealth accumulated and other critical outcomes. To assist advisors in the planning process, the paper also provides prescriptive guidelines and best practices for choosing among these products based on client characteristics, market performance and other factors.

“To provide more transparency, and help RIAs, fee-based advisors and their clients make more educated decisions about retirement income solutions, we are honored to partner on this new research with Wade Pfau, an award-winning expert in this area of study,” says Mitchell Caplan, CEO of Jefferson National. “Generating reliable retirement income has become more challenging for advisors as each client’s situation is unique, market dynamics have become more complex, and the landscape for variable annuities has changed. Our new whitepaper lays out the factors associated with guaranteed variable annuities and Investment-Only VAs, two dramatically different products, to help advisors and their clients identify the best approach to accumulate more wealth and live a fuller life in retirement.”

This whitepaper is not available to the general public. Qualified financial professionals can download a copy of the white paper here.





About the whitepaper research
The analysis in the whitepaper compares a low-cost Investment-Only VA to a hypothetical Guaranteed VA, combining characteristics of more than 30 popular variable annuities with a Guaranteed Living Withdrawal Benefit, for the pre- and post-retirement periods using 5,000 Monte Carlo simulations, based on more than eight decades of market data. Each hypothetical case assumes an initial investment of $100,000 into the IOVA and the Guaranteed VA, the tax-deferred accumulation period is either 10 or 20 years, the income withdrawal is assumed to begin at age 65, and the assumed horizon for income withdrawals is either 20 or 30 years.

About Jefferson National
Jefferson National is a leading innovator of tax-advantaged investing solutions for RIAs, fee-based advisors and the clients they serve. Trusted partner to a network of 3,000 advisors nationwide, Jefferson National provides efficiency, transparency and choice through an adaptable technology platform, award-winning distribution strategy and cost-effective servicing capabilities. Named the industry “Gold Standard” by a leading independent third party research firm, and winner of more than 30 industry awards, including the DMA 2010 Financial Services Company of the Year. The Company is based in Louisville, Ky., with authority in 49 states and the District of Columbia. To reach our advisor support desk, please call 1-866-WHY-FLAT (1-866-949-3528). To learn more, please visit