The Annuity Solution | April 2002 Cover Story Sidebar

Cover Story Sidebar: The Annuity Solution

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Investors sitting on nest eggs built on outsized stock market returns of the 1990s didn't have substantial assets at risk in the equities markets 10 years ago. Many of those investors, now approaching retirement age, have watched those nest eggs shrink. It is common for these investors to wonder whether their previously substantial retirement assets will see them through their lives. Rochelle Lamm, chairman and CEO of Precision Marketing Partners, LLC/The Academy of Financial Services Studies, says the dynamics and performance characteristics of variable annuities can help reassure skittish Boomers and seniors.

Lamm, whose firm trains advisors to sell and serve their clients more effectively, says that "annuities, unlike most other investment products, actually help reassure investors approaching retirement since they are the only retirement vehicle that can provide a level of income that cannot be outlived." Here's why.

Variable annuities can:

force good investment behavior. Most advisors will tell clients that dollar-cost averaging is a sound strategy; yet, many individual investors cannot resist the opportunity to time their equity purchases. A number of recent studies have shown that more often than not, investors' timing is off -- sometimes badly. This results in buying high, selling low and generally trailing market performance overall. Instead, annuities can allow for disciplined dollar-cost averaging, removing the guesswork and increasing the odds in favor of achieving long-run gains.

encourage more good habits. Asset allocation and disciplined management of the desired allocation are two additional key elements of successful investing. But while they have a proven track record of reducing portfolio risk, all too often, they fell by the wayside during the booming 1990s. Variable annuities usually offer investment options in a wide variety of asset classes. You'll also see the benefit of rebalancing in some variable annuities, as some offer more customized allocations based on the investor's needs.

"As is the case with equity-centric investments, investors must often be reminded or encouraged to look backwards to understand that volatility and significant declines in equity prices have occurred before and should be expected again," says Lamm. "It is important to give your clients a perspective on the markets as a whole. Over the long term, equities have outperformed other more conservative asset classes, even when the rough patches are accounted for."

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