The Lead

Planning & The Exodus Into Longevity

How unbundling can help solve the annuity puzzle

by David Stone

David Stone is Founder and CEO of RetireOne®, the leading, independent platform for fee-based insurance solutions. 


With the growth in 401(k) plans and the contraction of private pensions over the last 30 years, risks in retirement have slowly and almost imperceptibly transferred from institutions to individuals. Institutions staffed with actuaries and analysts are well suited to manage those risks. Individuals, however, may need some help.

We’re standing at the confluence of two rivers: the first described above, and the second is something the Alliance for Retirement Income calls “Peak 65” – in just a few short years, America’s population of people aged 65+ will be larger than ever before.[1]

This may explain why our “2021 RIA Protected Accumulation + Retirement Income Survey” (RIA PARI Survey)—a joint survey with Protective—found that 90% of RIA respondents prioritize retirement income planning as their most important service for clients. As the largest generation of Americans retire, our retirement system will be stressed like we’ve never seen throughout our nation’s history.

10,000 New Retirees Per Day

It is estimated that each day, 10,000 Baby Boomers pack boxes with their personalized pens, pencils, sticky notes, certificates of completion, stress balls, and sun-bleached Successories posters on their way to retirements that are lasting longer than ever. That’s 10,000 people per day shouldering the burden of paying themselves out of their retirement savings for the next 30 or 40 years, and the fear that they’ll outlive it.

It’s a safe bet that all these new retirees want the assurance that they will not live longer than their retirement savings. When they entered the job market in the early 80s, 60% of private sector employees could count on the protected income afforded by pensions. Today, less than 4% have access to them.[2] In the absence of a pension, the answer for many of them could be to transfer that longevity risk to an insurance company via the purchase of an income annuity.

In fact, economists like William Sharpe have touted the value and utility of guaranteed lifetime income in the form of deferred and immediate income annuities[3] for a long time. They agree that the core value lies in the mortality credits that accrue as annuity contract owners live longer. Sharpe himself, creator of the “Sharpe ratio” and measurer of economic risks, has dedicated a significant amount of his research to retirement income.

So, if risk experts recommend income annuities for managing longevity risk, why don’t more Americans take advantage of them? According to a 2013 study from Ruark, annuitization rates are less than 5%.[4] Further, the National Bureau for Economic Research finds that less than half of pension owners choose to annuitize at retirement even when annuitization is the default option.[5] The rest take a lump sum and hope the money will last. If that cohort is indicative of the larger investing public, then it may be a safe bet that annuitization is unpopular.

The Answer?

There are many studies examining the relative unpopularity of immediate and deferred income annuities, in spite of their declared economic value. Since they are fiduciaries, RIA complaints line up closely with those of their clients, and the primary complaints from consumers are that annuities utilizing annuitization for payout streams are illiquid, and unfair.

For example: if I buy an annuity today and get sick tomorrow, I can’t access the money I’ve just handed to the insurance company to annuitize. Worse yet, if I get hit by a bus in a couple of days and die, my money goes into the pool of assets to pay out other annuity owners in the form of mortality credits. My heirs get nothing.

To solve for these and other annuity uptake issues, insurance companies created “Guaranteed Living Withdrawal Benefits” (GLWBs) to add some flexibility to annuity payout streams. Rather than annuitizing, a GLWB can be attached to a variable annuity, for instance, and payouts can be based on an asset that not only retains a trackable value, but can also be accessed and passed on to heirs at death.

In spite of these innovations, our 2021 RIA PARI Survey finds that annuities aren’t typically recommended for their income-producing features. 78% of investment advisor representative (IAR) respondents who refer annuities cite downside protection with upside potential as their primary goal vs. 48% of those same respondents who say they seek them out for lifetime income guarantees.

Even so, our study also revealed that 84% of IARs of RIAs whose clients own annuities agree or strongly agree that guaranteed lifetime income is more important to them than a fully stocked wine cellar. And of those same advisors, nearly 90% agree that guaranteed lifetime income makes their clients happy and allows their clients to sleep easier. Clearly, advisors whose clients own annuities recognize that guaranteed lifetime income is valuable to them and provides critical emotional ballast.

So, Where’s the Disconnect?

Annuities aren’t well understood by consumers or their financial advisors. Often sold as investments instead of insurance, annuities in general are perceived by RIAs to be expensive, complex and illiquid. This, in spite of the last decade of commission-free annuity design and development.

Our study finds that more than one in five IARs of RIAs would not refer a client to an annuity even if their needs were addressed by the features of that annuity. Though this number is down from 2020 when a third of respondents indicated they wouldn’t consider an annuity for clients, it indicates a lack of awareness of annuity innovations.

Advisory annuities are commission-free insurance products designed for the fee-based structures of fiduciary practices. Because distribution costs aren’t priced in, internal fees may be much lower than traditional annuities, and crediting features may be more generous.Though simplified, and built expressly for fee-based advice models, they still suffer from the poor and undeserved perceptions of their commissionable cousins.

Indeed, four of the top five reasons cited by annuity detractors above are fees, liquidity, opacity, and fairness. All of these objections are addressed in one way or another by the many advisory solutions that have come to market. As more of these advisory solutions are developed, RIAs need to understand how they are uniquely built to satisfy important client needs that may not be met any other way.

This is critical as more and more advisors move to fee-based practices, because:

  • People are living much longer and may need income streams to last 40 or 50 years;
  • William Bengen’s 4% safe withdrawal rate may no longer be an effective way to build sustainable income streams; and
  • Super-low interest rates may neutralize traditional methods for managing risk for the foreseeable future.

The Elephant in the Room

As the largest generation of Americans retire, our retirement system will be stressed like we’ve never seen throughout our nation’s history...

Annuitization can pose a direct threat to an RIA’s practice: Their income. As mentioned above, there are a couple of different ways to create streams of income from annuities, but annuitization is one option.

Taboos may not permit advisors to admit that they wouldn’t recommend annuities for income because a.) they can’t bill on the asset, so it drastically reduces AUM, or b.) a structure that pays out a client draws down their asset(s) while simultaneously draining some of the advisor’s income (if fee-based). So, a.) and b.) turn this into a real fiduciary issue, since neither are sensitive to the needs of the client.

But the needs of the advisor must also be met. Different billing structures may help. Advisors have been experimenting with retainers, hourly fees, a la carte services and other billing concepts for creating income plans. Product design must also accommodate how RIAs do business as insurance companies consider the annuity puzzle.

It has been easy to amplify old clichés about annuities and how they were sold. There have been some bad actors. The truth is that if all annuities are all bad, then fiduciaries can ignore all of them. That position is indefensible, now. If American savers are to fund very long retirements, annuities (for income) can’t remain a threat to the fiduciary way of life. No-load annuities have come along at just the right time, and an important recent innovation will take them even further.

Welcome to the Future

Recent relief from the IRS in the form of a Private Letter Ruling has made it possible for a consortium of annuity providers to make the products billable without a taxable event to the end client, and data integrations have made them more visible and accessible on advisor workstations. They are much easier to use than in years past.

However, there may be yet another elephant in the room: the held-awayness (sorry for the neologism) of annuities.

It can be difficult for RIAs to fully integrate annuities into client portfolios because the money is held at the insurance company instead of their chosen custodian. As such annuities must be managed, rebalanced or traded separately from all of the other client assets. That is until the advent of the Contingent Deferred Annuity (“CDA”).

In partnership with Midland National, we’ve brought the first widely-available CDA built expressly for RIAs to market. Named Constance, this solution was designed to address concerns of RIAs and their clients mentioned above, all through one important innovation: unbundling the insurance protections from the underlying investments.


Unbundling the longevity insurance and sequence of returns insurance from the underlying investments in a traditional variable annuity structure introduces benefits that address advisor and investor concerns about annuitization and living benefits:

  • Separate Pricing: The insurance component is priced separately from the investments and offered as a stand-alone living benefit, which may generate a lifetime income stream from retail mutual funds and ETFs.
  • Portability: The living benefit is portable from custodian to custodian—a form of portfolio insurance which firms can use to wrap their models. Advisors may no longer need to sell out of positions to buy portfolio protections, or to create similar models using the limited Variable Insurance Trust (VIT) version of mutual funds offered in variable annuities.
  • Cost: Competitively priced institutional ETFs and mutual funds can be covered, which means that costs are contained. The only expense, then, is the flat fee (110 to 230 basis points of total contributions) the investor pays for the insurance protections. Subaccount fees, Mortality and Expense Risk charges, and administrative fees are eliminated.
  • Flexibility: The investor only pays for the insurance they need and when they need it, which they can select based on their situation and risk budget. The higher the allocation to equities, the higher the cost to hedge and insure the portfolio. Importantly, unbundling creates flexibility for termination when insurance is no longer needed.
  • Control: Because the insurance and investments would no longer be packaged together, advisors could manage their own models, rebalance, buy, and sell and see the assets on their custodial platform(s) of choice. They could more easily report on, bill from, and include them on client statements without the need for any additional technologies. The advisor’s core value as asset allocator would be preserved, and their role in the financial lives of their clients protected.

Constance is the future of protected retirement income solutions. Not only does unbundling solve for investor objections to annuities, it also helps a great deal with advisor adoption as a form of portfolio retirement income guarantee with improved flexibility and control.

I mentioned that we’re standing at the confluence of two rivers, but there are actually three. The third is the Great Wealth Transfer in which trillions of dollars will be passed down to Gen Xers and Millennials in the coming decade. Solutions that can be passed to succeeding generations like Constance will be even more important in the coming years.




The ConstanceSM Group Contingent Deferred Annuity is issued by Midland National® Life Insurance Company, West Des Moines, Iowa 50266, offered by EF Legacy Securities, LLC (dba RetireOne), member FINRA and underwritten by Sammons Financial Network®, LLC., member FINRA. Sammons Financial Network®, LLC., and Midland National® Life Insurance Company are wholly owned subsidiaries of Sammons® Financial Group, Inc. and are not affiliated with EF Legacy Securities, LLC., and RetireOne.