The New Longevity

Volatility In The Fragile Decade

Investors within 10 years of retirement just got a rude awakening…Where is their refuge?

by Jeff Cusack

Mr. Cusack is Chief Distribution Officer of RetireOne, an independent platform for fee-based insurance solutions. Visit

The past year was a wild, downward ride for many investors’ portfolios, particularly those with a traditional 60/40 portfolio. According to Vanguard, a portfolio coupling the S&P 500 index with the Bloomberg U.S. Aggregate Bond Index would have lost 16% in 2022, marking the worst year for the portfolio since a negative 21% showing in 2008 and the second-worst on record since 1976.

Everything from high-flying tech stocks to value plays and even bonds were rocked by a continuous stream of negative events. Inflation took off globally and central banks attempted to rein it in with a series of interest rate hikes. Russia invaded Ukraine, energy prices spiked even further and the pain continued.

No one knows for certain what 2023 has in store for markets. Will the global interest rate hikes work as intended, bringing inflation down while avoiding a recession? Or will the headwinds abate, the global economy regain its strength and traditional investments like a 60/40 portfolio bounce back to offer double digit returns?

For long-term investors who have decades to go until their retirement, the market gyrations are just a blip on their journey. In fact, for those making consistent, recurring investments in their 401(k)s and IRAs, downturns provide an opportunity to purchase quality investments on sale. As proof, from 1980 through July 2022, the 60/40 portfolio delivered positive returns in 35 of 42 years, meaning investors utilizing that investment mix saw positive returns 83% of the time. Those are pretty good odds. Factor in that home values generally doubled in value and 2022 was pre-dated by a decade-long bull market and long-term investors have little reason to be concerned.

The Fragile Decade And Impact Of Sequence-Of-Returns-Risk

If you’re an investor who is in their “fragile decade,” or the last five working years through the first five years in retirement, the situation is a lot more concerning. Downturns like 2022 can have a drastic impact on these investors, as they face the double-edged sword of poor market performance coupled with regular withdrawals. This effect can be devastating for those without the time to hope the market rebounds to recoup some losses.

The poor performance in both stocks and bonds last year increased the chance that investors in their fragile decade will grapple with sequence-of-returns-risk, or negative portfolio returns very late in their working lives and/or in early retirement. This phenomenon results in less money to spend in retirement for an investor and raises the specter of longevity risk as well.

This hyper-inflationary environment is yet one more factor eating away at retirement funds for those in the fragile decade. If the central banking rate hikes don’t slow inflation, these investors won’t be able to maintain the lifestyle they want in their retirement years.

The Appeal Of Guaranteed Income Strategies

More advisors are beginning to recommend guaranteed income products given the ongoing volatility in stocks and bonds. For a low fee, typically about one percent of the portfolio, they function like a security blanket for your portfolio.

Take a contingent deferred annuity (CDA) for example. CDAs provide lifetime income protection so that clients don’t have to be concerned with market risk, sequence-of-returns-risk or longevity risk. CDAs can wrap client brokerage accounts, Individual Retirement Accounts (IRA), or Roth IRAs, and provide a floor of income that is guaranteed by an insurance company to be based on the initial investment, even if markets fall. However, if the market is performing well, income payouts are based on a portfolio high-water mark each year. If we experience another lengthy bull market and longevity risk is no longer in play for your client’s retirement assets, they may simply cancel the insurance with no penalties.

Everything from high-flying tech stocks to value plays and even bonds were rocked by a continuous stream of negative events. Inflation took off globally and central banks attempted to rein it in with a series of interest rate hikes...

The joint RetireOne and Midland National 2022 RIA PARI Survey of financial professionals found that 64 percent of respondents said that their clients worry about being able to retire on time. Guaranteed income products can alleviate these anxieties, especially with longer lifespans and improved healthcare. A fixed, guaranteed stream of income for life, which functions as portfolio income insurance, can mitigate damage inflicted to the portfolio due to market declines, enabling the client to remain invested in stocks and bonds without worrying that their retirement could be delayed during bear markets.

Interest in guaranteed income products like annuities are also gaining in popularity. In 2022, 64 percent of our survey respondents said they were likely to refer an annuity to a client versus 52 percent in our 2021 survey. In addition, the percentage of neutral respondents declined significantly from 26 percent in 2021 to just 14 percent in 2022. Some experts even predict that CDAs could blossom into a $100 billion industry.

Why More Advisors Should Utilize Them

Many advisors view annuities and CDAs as an indication to clients that they’re not performing the job that they were hired to do. This couldn’t be further from the truth. As we just witnessed in 2022, the savviest financial advisor couldn’t have foreseen the steady drumbeat of negative market impacts, particularly inflation racing as high and quickly as it did. Even if they had a crystal ball to foresee the downturn, there was nowhere to hide, with stocks down on growth concerns, bonds battered by rising interest rates and money markets and certificates of deposit yielding next to nothing.

Another reason guaranteed income strategies aren’t more popular is because they have an erroneous reputation as being expensive. Consumers have been told for years to mistrust advisors who offer them annuities.

Some advisors managing ultra-high-net-worth (UHNW) and high-net-worth clients (HNW) don’t believe their clients need portfolio income insurance, given their vast accumulation of wealth. These advisors should stress to clients that only a small portion of their portfolio should be protected. By doing so, it can help maintain their lifestyle which likely looks much different from your average aspiring retiree.

For clients who simply want to enjoy a happy retirement, advise them that by guaranteeing a base of reliable income that can also participate in market upside, they remove the threat of sequence-of-returns and longevity risk. For a low cost and an insurance contract that they can cancel at any time sans penalty, they can live a fulfilling retirement and sleep at night.

Protect What Your Clients Worked So Hard To Save For

Income solutions guaranteed by insurance companies should see a boost in usage in coming years after the pain that fragile decade investors have experienced over the past year. This subset of investors has done a diligent job of socking away retirement assets, so it makes perfect sense to have a level of protection in their portfolios.

If the markets improve and we embark on another decade of bull market returns, the protection is easy to remove. Removing the insurance wrapper does not trigger a taxable event, there’s no penalty and the fee goes away.

Investors can afford to be more aggressive with portfolio income protection in place and advisors can alleviate the misconception that by placing clients in these products means that they’re not doing their jobs. The end goal of every investor is to manage income and preserve capital so that they can enjoy a relaxing and fulfilling retirement. Guaranteed income strategies can help ensure that your planned outcomes for your clients are achieved so they have peace of mind in their golden years.