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Hedging Guaranteed Income for Life vs. Wealth Accumulation

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Too many people look at retirement the wrong way, according to Eric Henderson, left, senior vice president of individual products and solutions at Nationwide Financial Services. Instead of focusing on a guaranteed stream of income for life, they work their entire career with a dollar amount in their head.

“This has harmed people,” Henderson told me recently at the LIMRA Conference in Orlando. He stopped by for a quick chat before hopping onstage for a session on risk management.

Henderson said it’s vital that the industry educate the consumer, so much so that it becomes a way of doing business. According to Henderson, there has to be a mindset shift from accumulating money for retirement to one of an income stream in retirement.

“Too many people have a dollar amount in mind,” he said. “They have gotten it in their head that they might retire with $250,000 without really understanding what that means to them over a 20- or 30-year retirement.”

Henderson said bringing an annuity into the portfolio of seniors is a great way to move toward an income stream instead having that big dollar sign in mind. He pointed to a study conducted by Nationwide and Ibbotson Associates a few years back.

According to the study, “adding a variable annuity with a lifetime guaranteed minimum withdrawal benefit (GMWB), an optional rider at an additional cost, to a traditional retirement portfolio can increase retirement income potential while decreasing income risk.”

Henderson emphasized to me that while annuities are often more suitable than other products to develop that guaranteed income stream, he doesn’t suggest that consumers “sell off their portfolio so they can get an annuity. Instead, they need to make [the annuity] part of the tool box.”

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